Recently by Bill Rounds: Avoid Pretexting
The Liberty Dollar case has had a huge impact on the world of gold and silver trading, investing, ownership and use. I covered a lot of ground in Part I and Part II, but there is another important aspect of that case that leaves the legal landscape partly shrouded in ominous and threatening clouds. What is the risk of criminal prosecution or criminal conviction to those who make or use gold and silver rounds of u201Coriginal designu201D?
Is There A Risk Of Prosecution For Trading With Gold And Silver
To answer that, we have to fully understand the actual law that was broken. We also need to consider the existing law that was not at issue in the Liberty Dollar case, the threats of prosecutors and the effect of potential constitutional challenges to those laws if a prosecution were undertaken.
Mr. von NotHaus Violated Fraud Based Statutes
The Liberty Dollar Trial was about fraud, not a private currency system as prosecutor Anne Tomkins falsely implied. The jury was asked to decide if the elements of fraud and conspiracy to commit fraud were met, nothing else. No other legal basis for the prosecution was ever presented to the jury and implying that there was another legal basis is mis-stating the facts of the case.
Critical Facts of The Case
Liberty Dollar made, sold, and used rounds that had many similarities to official US government coinage. The rounds were minted with a face value but the FRN value of the silver in the coins was less than this face value. Liberty Dollar encouraged exchanging Liberty Dollars with people who were unaware that the underlying FRN value of the silver was less than the denomination minted on its face. Liberty Dollar profited from this difference in value.
Key Elements Of Fraud
To be guilty of fraud, a jury must decide that a person has met all of the elements of that crime. The Jury Verdict Form contains all of the elements that this particular jury decided. The critical parts are summarized here.
Count 1 — Conspiracy
I will not get into Conspiracy because it is not in controversy.
Count 2 — Counterfeit Coin (18 USC 485 and 2)
The core actions that Liberty Dollar must have taken to be guilty of this crime are:
- To make coins;
- That resemble official US government issued coins;
- And use those coins;
- With intent to defraud.
It is undisputed that Liberty Dollar made and used coins. Their resemblance to official US government issued coins was a question of fact for the jury to decide. As described in detail previously, there were plenty of facts that could lead a reasonable person to believe that Liberty Dollar rounds resembled official US coins.
The final necessary element was the intent to defraud. I personally don’t think Mr. Von NotHaus had the intent to defraud, but intent can only be inferred by surrounding facts and circumstances. Clearly there were several facts that could lead a reasonable person to believe that there was intent to defraud. For example, encouragement to make change with people who did not know that there was a difference between the FRN value of the silver in the round and the face value.
Notice that nothing in this count requires that the coins be of original design.
Count 3 — Current Money (18 USC 486)
The core elements here are:
- Make and use a silver coin;
- Intended to be used as current money;
- Resembling genuine coins of the US OR coins of original design
Again it is undisputed that element 1 was met. Their resemblance to US coins has already been established. The intent can only be supposed from surrounding facts. The fact that Liberty Dollar encouraged merchants to make change with unsuspecting people could be the reasonable basis to find intent to use Liberty Dollars as current money.
It’s important to note the u201CORu201D in Count 3. This means that the statute is violated whether you violate one, the other, or both of these prongs. As I have laid out previously, the u201Cresembling genuine coins of the USu201D prong could easily stand on its own as having been violated. The u201Coriginal designu201D prong is unnecessary for the conviction.
The u201Cresembling genuine coinsu201D prong is essentially a case of fraud. The Liberty Dollar rounds were presented as something that they were not, to the detriment of unsuspecting individuals. It appears the jury thought the case was about fraud as well. At least one person claiming to be a juror in the case left a comment in the original post stating that my previous analysis correctly reflected u201Cwhat went on in court in the Liberty Dollar Trial.u201D
Who Was The Victim?
Many have claimed that there were no victims because the underlying value of the silver would eventually (and in hindsight has) become more valuable than the FRN that people gave up to get Liberty Dollars. Even people who mistakenly accepted Liberty Dollars, they claim, would have actually benefited.
This argument defies reason. The FRN price of silver changes. Sometimes it goes up and sometimes it goes down. Although I bet money that it will go up over time, it is impossible to predict the future. Nobody knows for sure if or when the price will change, how much it will change, and in which direction.
What must be understood is that to get someone to unknowingly accept Liberty Dollars instead of FRN is to unknowingly accept the risk that silver would appreciate in value instead of the risk that the FRN will decline in value. This is a risk unwitting acceptors of Liberty Dollars did not agree to bear.
Another problem is that the person who takes the discounted Liberty Dollar could have taken their $10 FRN and bought more silver somewhere else had they been paid in FRN instead of the Liberty Dollar round. Thus if the price of silver rises, they would have been prevented from realizing gains on a larger amount of silver. Thus people who unknowingly accepted Liberty Dollars instead of FRNs unknowingly suffered real or potential losses.
Tips To Avoid Prosecution For Fraud
So now that it is clear that the elements of fraud were met, what can honest traders do to avoid innocently coming too close to the line of fraud, which I think Mr. Von NotHaus did. Everyone should talk to a lawyer directly for legal advice, but a general principle is to avoid anything that would give the impression of fraud to investigators and clearly include things that would help eliminate the impression of fraud. Avoid making, using or trading rounds, medallions or tokens that in any way resemble official government currency of any country.
- Using the $ symbol
- Putting the name of a country on it like u201CUSAu201D
- Putting any word on it that appears on official currency like u201CLibertyu201D
- Using denominations that match the same denominations used in the official government coin
- Putting images on them that are similar to images used on official government currency
- Offering them as change in FRN transactions
Some things that can be helpful are:
- Use fictional characters, like Disney Dollars or Ithaca Hours do
- Display the weight and fineness of the metal rather than a numbered value like $10
- Be extremely clear when using them that they are not official US coins
Likelihood Of Prosecution
There are a handful of private mints, thousands of coin dealers and millions of people that make, use and trade rounds, medallions and tokens. If they follow many of these guidelines they are probably not at risk of prosecution for fraud.
Prosecution For Fraud Is Legitimate
Libertarian principles allow the use of force to protect against fraud. Dr. Viera concedes, in Pieces of Eight (pg. 1533) that Congress may have the Constitutional authority to legislate the u201Cresembling genuine coinu201D prong. Since it is clearly shown that people were, or there was an imminent threat of being, defrauded, prosecution under this part of the statute is likely to withstand any philosophical or constitutional challenges.
Prosecution For u201COriginal Designu201D
Anne Tompkins inferred that she intended to prosecute people under the u201Coriginal designu201D prong. She was obviously relying on dicta from a few lower court cases as the broad basis of her threat.
Dicta is not the law. Dicta is a statement in a court ruling that is usually made by a judge in passing with little to no research or analysis. At best she can hope that dicta maybe, possibly, someday becomes the law. Thus she is threatening to fly us head on into the brooding storm clouds of untested areas of law.
What This Threat Of Prosecution Means To Honest People
There are real implications to this kind of threat. First of all is the cost of legal defense. Even a person who is ultimately found innocent will probably incur legal costs in the tens of thousands of dollars. If there are constitutional challenges, which might require multiple appeals, the cost could easily rise to the hundreds of thousands.
Overzealous Prosecutors Regularly Disregard The Intent Behind A Law (To Punish Real Criminals) And Target Anyone Who Accidentally Crosses The Line
While most people find prosecution of people with innocent intent deplorable, overzealous prosecutors have been known to disregard the reason for a law and use their discretion to prosecute anyone who violates the letter of the law, even if the defendant’s intent and actions are otherwise completely innocent.
A good example of that is the prosecution of an Ohio woman under anti-drug laws for buying 2 packages of cold medicine in 1 week, one for two separate members of her family who were ill. The uphill evidentiary battle that defendants face makes it easy for prosecutors to convince juries that a defendant should be convicted in these kinds of cases.
If That Were The Law It Would Be Completely Unworkable
If this dicta were adopted as law, cautious people would have to avoid making or using anything that could potentially be used to barter because such an item could conceivably be used to compete with official government issued currency. That could include millions of rounds, commemorative medallions, or tokens. That is obviously a ridiculous outcome.
There are a few cases where clearly marked tokens such as Chuck E. Cheese tokens or batting cage tokens are outside of the purview of the u201Coriginal designu201D prong. Hence prosecution of those special purpose tokens is very unlikely.
A case centered around the u201Coriginal designu201D prong would not be about fraud at all. It would be about the right of people to use whatever medium of exchange they choose. Preventing private parties from trading what they want in such a manner is complete tyranny. In Argentina and other places around the world, the people purchase vehicles as a hedge against inflation. Under Anne Tomkins’ erroneous definition of the law, vehicles would be illegal because they compete with the national currency. Another ridiculous outcome.
18 USC 486 Is Probably Unconstitutional
The arguments supporting the unconstitutionality of the u201Coriginal designu201D language are quite strong.
Art. I Section 8, clause 5 of the US Constitution states in part:
u201CThe Congress shall have Power To… coin Money, regulate the Value thereof, and of foreign Coin.u201D On its face this gives the Congress the power to regulate the value of its own coinage, and that of foreign coins. There is absolutely no mention of the ability of Congress to do anything regarding private coinage.u201D
Clause 6 continues stating:
[Congress shall have power to…] u201Cprovide for the Punishment of counterfeiting the… current Coin of the United States.u201D This clearly gives Congress the power to punish counterfeiting the coins that they themselves produce, and probably to punish coins resembling genuine US coins. Again, there is absolutely no mention of private coinage. In fact, the definition of private coinage is that it is not the current coin of the US. Therefore Congress has no authority over private coinage at all and neither does any other branch.
The Ninth Amendment to the US Constitution states
u201CThe enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.u201D
The Tenth Amendment:
u201CThe powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.u201D
Since no Congressional power over private coinage is delegated, or even implied, nor is that power reserved to another branch of government, private coinage must be a power and right reserved to the states or the people under the 9th and/or 10th Amendments.
There are many, many, many, many, many, many examples of private coinage used throughout the US, under these same Constitutional provisions, for centuries. See What Has Government Done To Our Money by Murray Rothbard for a full discussion and historical examples.
What Is So Unconstitutional About 18 USC 486?
18 USC 486 states:
Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both. (emphasis added)
The constitutionality of the u201Coriginal designu201D clause is clearly eviscerated by Dr. Viera in Pieces of Eight pg. 1533 (criticizing 18 USC 486):
u201CThis prohibition [on private coinage] is plainly not grounded in Congress’s power u201CTo provide for the punishment of counterfeiting the current coin of the Unites Statesu201D because a person… who makes… coins… of original design is not doing anything with relation to the u201Ccurrent coin of the United Statesu201D by definition.u201D
The power to regulate coins of original design is clearly not within Article I Section 8 clauses 5 or 6. It is thus a clear violation of the Ninth and Tenth Amendments to the US Constitution.
Dicta that claim legitimacy of this language shows that judges have clearly failed to consult legislative history, constitutional authority, American history, or case law dealing with it. Thorough research and analysis would likely reveal the error in these statements of unauthoritative opinion.
The Outcome Of A Constitutional Challenge Is Unknown
Unfortunately, the current state of monetary law in the United States is nonsensical so it’s tough to know how persuasive these constitutional arguments would be to an uneducated judiciary. Thus a constitutional challenge is not guaranteed to have the logical outcome of invalidating the offensive language of the statute.
Someone Else Must Be Convicted Before A Constitutional Challenge Can Be Made
Without getting into some very intricate rules on u201Credressability,u201D it is doubtful that anyone could even challenge the clearly unconstitutional parts of 18 USC 486 until someone is convicted under the relevant part of that section. That is because a person can’t appeal a decision unless the outcome would change if they win the appeal. (Allen v. Wright, 468 U.S. 737 (1984)).
Here, Mr. von NotHaus was convicted. His conviction would stand under the fraud prong of the statute alone and does not need the u201Coriginal designu201D prong. Even if the u201Coriginal designu201D language was declared unconstitutional on appeal, it wouldn’t change the outcome for him. Therefore he is unlikely to be able to challenge its constitutionality.
Another Legal Guinea Pig Is Needed
To challenge the constitutionality of the u201Coriginal designu201D prong, another individual will have to be convicted. This time, their conviction must clearly be under the u201Coriginal designu201D prong and not at all under the resemblance prong. This means that the constitutionality of this law will probably remain unresolved for many years.
Practicality of Enforcement
When innocent people might be wrongly prosecuted because it looks like they are committing a crime when in fact they aren’t, they must determine how likely it would be for them to be prosecuted for their innocent behavior. Part of this calculation is determining how likely it is that they would be prosecuted based on the practicality of enforcing the law that could mistakenly be used against them.
A mint, the company actually making rounds, medallions and tokens, is at the most risk of prosecution. Their operation is probably fairly large, easy to find and hard to move.
Fortunately that risk is still very low, even after the von NotHaus conviction. The Sunshine Mint that produced the Liberty Dollars was not a defendant in the case and there have been no prosecutions of the many other private mints throughout the country. Thus prosecution of private minters under the original design prong is unlikely.
It would be very difficult and expensive to prosecute individuals for using rounds medallions and tokens in private transactions. It would be incredibly difficult to detect and investigate. Unless people feel they have been defrauded upon accepting them, there is unlikely to be any investigation of individuals for using metal to pay for goods and services.
This is important for the millions of innocent people who will be trading things that are not illegal because they should know the risk of erroneous prosecution. It is extremely low because of these difficulties in detection and investigation of the transactions.
Risk Of Prosecution For Fraud
There are millions of rounds, medallions or tokens existing in the US that follow the guidelines mentioned earlier. To prosecute every maker, holder or user of them would be completely outrageous. It would also be practically impossible to prosecute everyone because it is impossible to monitor that many private transactions effectively, even with dictatorial control. Therefore, someone making or bartering with gold or silver who is following these guidelines has very little risk of mistaken prosecution for fraud.
Barter with metal has not been ruled by a court of law to be illegal. Barter is constitutional, whether it is for chickens, potatoes, FRN, gold or silver rounds or anything else you want. There is a cloud over the issue of bartering with gold or silver rounds, medallions or tokens because of the generalized and remote possibility of being prosecuted if you do. Bartering with metal is so common and widespread it would insanely expensive to systematically investigate and impractical to enforce such a policy. Thus, the threat is not nearly as great as the threat posed to Liberty Dollar. Plus, the u201Coriginal designu201D language that smacks of dictatorial control is likely to be overturned because it is probably unconstitutional. For more ways to protect your right to private exchange of goods and prevent being mistakenly prosecuted, get the book How To Vanish and sign up for the email list.
Reprinted with permission from How to Vanish.
Bill Rounds, J.D. is a California attorney. He holds a degree in Accounting from the University of Utah and a law degree from California Western School of Law. He practices civil litigation, domestic and foreign business entity formation and transactions, criminal defense and privacy law. He is a strong advocate of personal and financial freedom and civil liberties.