How to prove legitimacy or that my coin was not used in a recent illicit deal? Let me start by saying that I understand that the money in my wallet may at one time have been used in an illicit transaction. 

We have a question that we need help with.

How do we show regulators and other entities that Bob in the following scenario is not laundering funds? 

Bob our mild mannered engineer who works from home has done a ton of work for a new website. He has agreed to accept payment in btc- The website pays him the equivalent of 20K USD in btc.  The company bought those coins from a variety of other sources that are not involved in any criminal activity, those people also got their btc from other sources that are non-criminal. Let's say we dive an additional 5 levels deep and these btc are as pure as the driven snow. And maybe some of them were used long ago in sale of endangered birds or drugs or whatever. Just like the 20 dollar bill in my wallet.

7 months later Bob cashes in!! He now has 20K USD that he wants to deposit in to his bank account. In this scenario- mean men with badges show up at Bob's house and accuse him of selling dope and that 20K is via the proceeds of a crime and they want to send Bob to the nearest house of corrections. To make matters worse, Bob's work PC was lost in a boating accident and the web company he worked with is no longer in business. No proof of the work he did.

How can we help Bob quickly show the men with badges that the btc Bob received for payment was not bad money? 

And as stated in the scenario maybe some of the btc were used in illicit activity but months later good honest people have these coins and we should consider these coins as pure as the $20 in my wallet that I got from  may have been used to buy cocaine 5 months ago.

I can do analysis of our intake and show the regulators that the exchanges we work with are not buying from criminals and that we are certainly not allowing it. I am hoping to be able to show that people selling directly to exchanges are not not criminals either. 

Thank you!
Administratively, there should be plenty of evidence that Bob was working a legitimate job.


If the web firm is a US company and Bob a US worker, then the company is required to file a form 1099-MISC.  Yes ... even if they paid him in non-USD currency.
Some time in that seven-month period, Bob should have paid his quarterly    taxes.  That adds to the legitimacy of his income.
There must be some kind of timekeeping and invoicing process between Bob and the web company, along with specifications, emails, and other evidence of a working relationship.
Bob can point to the stuff he built. (I know from experience that this isn't always possible.  I have worked on a lot of internal projects that people outside a company never have access to.)
If the web company bought their bitcoins on open exchanges, then there is an associated bank account and a bunch of regulatory machinery that has already kicked in at some point.  The company is already being monitored under the usual rules for currency exchanges.


There is a technical side of this too.  Because the entire bitcoin ledger is public knowledge, it should be very clear that Bob has been saving his bitcoins for the past several months.  That is probably not typical behavior for a money launderer.  If, on the other hand, it is clear Bob has been using a mixing service to receive his Bitcoins he may have a problem.

Ultimately all money is fungible.  As you've already intuited, this problem isn't really much different from if Bob was taking his pay in USD instead of Bitcoin.