‘No Legitimate Purpose’: New Jersey lawmaker seeks to ban bitcoin ATMs linked to crypto scams and fraud

New Jersey may soon ban ATMs that let customers discreetly convert their hard-earned cash into cryptocurrency, with advocates of the measure saying the prohibition would cut the wild amount of fraud that regularly occurs at such machines.

The new bill, introduced in the state Senate last September by Gloucester County Democrat Paul Moriarty, cites federal statistics that show fraud victims lost a staggering $110 million in 2023 at the ATMs — about 10 times more than just three years earlier.

“I don’t believe there’s any legitimate purpose for bitcoin ATM machines. None,” Moriarty told The Jersey Vindicator on Thursday. “And the people who are operating these networks are profiting off the pain and suffering of victims all across America.”

The kiosks — which have been on the state’s radar for several years — are a major tool for predators who pose as members of the government, banks, businesses or law enforcement to convince their marks to send them digital payments, according to the bill.

“The lies told by scammers vary, but they all create some urgent justification for consumers to take cash out of their bank accounts and put it into a bitcoin ATM,” the U.S. Federal Trade Commission said on its website.

A 2021 report by the New Jersey Commission of Investigation  proposed stringent new rules for the machines, which the feds said were directly tied to $65 million in losses during the first six months of 2024.

But Moriarty said that’s not enough.

If his bill passes, the Garden State would totally ban the innocuous kiosks that have sprouted up at bodegas, gas stations and coffee shops across the nation over the last few years.

Currently under review in the Senate Commerce Committee, the measure would likely be one of the most forceful attempts in the country to rein in the freewheeling crypto market, which police sources said has melted into a hotbed of lawlessness.

The easy-to-use ATMs make transactions incredibly smooth — for a hefty fee, users insert cash that’s instantly turned into crypto coins, stored in their digital wallet and accessed with a code the machine spits out, the report said.

But many of the fly-by-night kiosks — of which there are nearly 38,000 in the United States, according to Coin ATM Radar — don’t require the same security as an online platform might.

ATM users don’t have to provide a credit card or bank account number, and some don’t require any identifying info at all, the commission wrote.

This makes transactions “virtually untraceable,” the report said.

“They’re an easy way to hide and transfer money,” one Bergen County detective said this week. “All the [digital] wallets and cash apps are a problem — it’s hard to track the money and easy to hide your identity. The law is years behind the technology.”

In one such underhanded plot, a caller claiming to be a local sheriff’s officer tells the victim there’s a warrant out for their arrest — but they can clear it by paying up, the detective said.

“Some people will call [the department], and we’ll be on the phone with them saying, ‘It’s a scam, don’t give them any money and hang up,’” the source added. “And they’re like, ‘But they’re telling me I have a warrant!’ And we’re saying, ‘It’s a scam, don’t do it!’”

The commission report also pointed to a 2019 grift in which a woman who feared her identity had been stolen used seven different crypto kiosks in Bergen, Essex and Passaic counties to send $12,000 to her scammer, who claimed to be a U.S. marshal.

Fraudsters disproportionately target those age 60 and older, who are three times more likely to get duped. Those who fall for the schemes lose a median of about $10,000 per transaction, the feds added.

But because so many instances of fraud go unreported, the figures are likely far higher.

The state report blamed a lack of local regulation and complex-but-sporadically enforced federal money laundering laws for the bulk of the problems.

State authorities must establish effective oversight of the machines if they want to guide the industry’s growth, safeguard customers and keep the criminals out, the report said.

The report also pointed to legislation working its way through the Statehouse at the time that would have addressed many of the concerns by forcing crypto companies to apply for a license and creating a regulatory system to protect consumers, among other things.

But that proposal — dubbed the “Digital Asset and Blockchain Technology Act” — has died on the vine every year since its initial introduction, according to legislative records.

Lawmakers in both chambers reintroduced the bill in January 2024, but it has languished in committee ever since.

As New Jersey has faltered, other states have tightened the legislative leash on the crypto market.

For instance, Nebraska passed a law requiring transaction limits and full-refund options for new customers, according to the AARP.

Crypto ATM operators also need to get a state money transmitter license, post fraud warnings directly on the machine and issue receipts for transactions.

Vermont and Minnesota passed similar protections, and the organization is pushing for stronger laws in 17 other states, including New Jersey.

“The problem is people just don’t quite understand cryptocurrency,” Francoise Cleveland, an AARP government affairs director for financial security, wrote on the group’s website.

“I think there’s an appetite among states to do something, but they just don’t understand what to do. And so with this legislation, we’re trying to help the states get a handle on the fraud that’s being perpetrated through these kiosks.”

New Jersey’s total ban would likely be the strongest of these measures — and big penalties would serve as the teeth meant to dissuade would-be crypto kings from stepping foot in the Garden State.

Any business owner who breaks the ban by owning, controlling, installing or managing a crypto ATM in New Jersey could be punished by a $10,000 fine that would double for subsequent offenses, among other consequences, the bill said.

When asked how likely it is that the bill will become law, Moriarty said it’s got a 50-50 shot.

“There’s a lot of education that I have to do with my colleagues to convince them that there are no real, legitimate purposes for these Bitcoin ATM machines,” he said. “They’re nothing more than conduits for fraud.”