Father & Son Accused of Using Bitcoin to Launder Sales of Marijuana

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According to a press release from the U.S. Department of Justice, a father (Kenneth John Rhule, 47) and son (Kenneth Warren Rhule, 28) were sentenced to prison on money laundering and drug charges.   And this comes after the House of Representatives federally decriminalized Marijuana nationwide.

Kenneth Warren Rhule was sentenced to five years in prison for running an unlicensed marijuana business in Monroe and engaging in a Bitcoin money-laundering scheme.  His dad, Kenneth John Rhule, will also serve five years in prison for conspiring to operate a business that did not pay taxes to the state.

The father and son pair were arrested in Washington. After the Department of Homeland Security and the Drug Enforcement Agency investigations, Rhules was found guilty and charged.

Nick Brown, a U.S. attorney, said, “Not only did this pair produce and distribute products on the dark web, in violation of the state’s regulatory scheme, they also illegally laundered immense amounts of bitcoin that their enterprise earned.”

The investigating officers discovered firearms in their facility in Washington. The possession of firearms played a significant role in the final ruling.

When law enforcement moved in, there were more than a dozen firearms – some loaded and ready to be used to protect their drug trade.” According to Nick Bown.

How This Father And Son Were Arrested

In April 2018, U.S. law enforcement agencies became aware that a person by the fake name Gimacut93 was running an illegal Bitcoin exchange business.  On investigation, the screen name was discovered to be Kenneth W. Rhule.

An undercover agent pausing as a money launderer met Kenneth on several occasions at Starbucks coffee shops. The investigator pretended to represent a client who needed to exchange money from operating a human trafficking business with Bitcoins.

Rhule junior agreed to carry on with the exchange, even though he was aware that the money was earned from a criminal business. He agreed to exchange the money without asking the undercover agent questions under the “know your customer” rule. 

Furthermore, he advised the agent on other aspects of virtual currency and even gave him options on how to hide the source of his money. This proved that Kenneth Rhule was well experienced in money laundering.

How Much Bitcoin Was Involved?

The DOJ says that Kenneth Warren Rhule agreed to trade $142,000 worth of bitcoin for cash with their undercover agent. This was in addition to the $13 million income from selling Marijuana countrywide.

During the time he was operating the money laundering business, Kenneth Warren and his father, Kenneth John, were also illegally manufacturing and distributing Marijuana in exchange for cash or Bitcoins in  Washington.

Their store based in Monroe was making hash oil, among other products, with the names HerbinArtisans, Heady.Watr, and KlearKrew. They operated the business without a license to evade tax.  Defying the state licensing scheme is a punishable offense.

The state is also, of course, entitled to tax the marijuana industry.  Yet the defendants ignored all this.”

This is a strange event considering Marijuana is being legalized everywhere.  And there are plenty of ways to legitimately operate a business, like an online smoke shop, MMJ delivery, or just sell some heady glass.

The case’s prosecutors noted that the father and son duo were led by greed to operate the businesses illegally.  However, running a business against the law puts the consumers at risk and disadvantages other business owners who choose to abide by the law.

Blame it on Bitcoin

The sentencing of father and son came after another sentencing of Jeremy Spence, who was arrested and charged for running a crypto investment scheme. This shows that cryptocurrencies are incompatible with illegal dealings, and increased usage of Bitcoin in crime will continue to delay its adoption as a digital currency possibly.   Though on the contrary, many dispensaries have been looking at Bitcoin for an alternative to cash since before the House of Representatives federally decriminalized (see story) the ‘green sticky icky.’


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