Key Takeaways
- According to the letter, the DOJ’s position creates inconsistencies between different U.S. regulatory agencies, exposing developers to potential felony charges
- The letter urges Congress to clarify the intent of Section 1960 and ensure that software development does not fall under money transmission laws unless developers take direct control of funds.
The crypto industry is pushing back against the U.S. Department of Justice’s (DOJ) legal actions against Tornado Cash, arguing that the agency is misapplying federal money transmission laws.
A coalition of 34 crypto organizations, led by the DeFi Education Fund, has sent a letter to congressional leaders urging them to intervene in what they describe as the DOJ’s “unprecedented and overly expansive” interpretation of money transmission regulations.
The DOJ’s case against Tornado Cash developers Roman Storm and Roman Semenov, filed in August 2023, alleges that they operated an unlicensed money-transmitting business under 18 U.S.C. 1960. The indictment claims that Tornado Cash facilitated illicit financial transactions by allowing users to anonymize cryptocurrency transfers. Storm, who has pleaded not guilty, is fighting to have the charges dismissed, while Semenov remains at large.
According to the coalition, the DOJ’s legal stance contradicts prior guidance from the Financial Crimes Enforcement Network (FinCEN).
In 2019, FinCEN clarified that software developers who do not take custody of user funds are not considered money transmitters under 31 U.S.C. 5330, which governs financial licensing under the Bank Secrecy Act (BSA). However, the DOJ has used a separate statute, 18 U.S.C. 1960, to argue that developers of non-custodial software—who never control user funds—can still be prosecuted for money transmission violations.
The letter, signed by major industry firms including Coinbase, Kraken, Uniswap Labs, Ledger, Consensys, and Paradigm, argues that this interpretation creates conflicting legal standards between U.S. agencies. “Two separate U.S. government agencies with conflicting interpretations of ‘money transmission’ create an unclear, unfair position for law-abiding industry participants and innovators,” the coalition wrote.
The letter warns that unless Congress intervenes or the DOJ revises its position, blockchain developers working on decentralized finance (DeFi) applications and non-custodial wallets could face prosecution despite not handling user assets. The coalition argues that money transmission laws require actual control over funds, and applying them to software development risks discouraging innovation in the U.S.
The letter further urges Congress to “ensure that software development does not fall under money transmission laws unless developers take direct control of funds,” warning that the DOJ’s actions could stifle blockchain innovation and push developers to relocate outside the U.S.
The DOJ’s approach has raised concerns beyond Tornado Cash. Similar charges were recently filed against Samourai Wallet co-founders Keonne Rodriguez and William Lonergan Hill, who also deny wrongdoing. The coalition also pointed to a lawsuit by Michael Lewellen against Attorney General Merrick Garland, which challenges the DOJ’s application of money transmission laws to open-source software developers.
