More than 30 cryptocurrency companies, spearheaded by the DeFi Education Fund, are calling on Congress to reconsider the Department of Justice’s interpretation of money transmission laws, which they argue could put non-custodial software developers at risk of criminal prosecution.
In a letter addressed to pivotal lawmakers, including Chair of the Senate Banking Committee Tim Scott and Chair of the House Judiciary Committee Jim Jordan, the industry contends that the DOJ’s interpretation of Section 1960—first highlighted in an indictment from August 2023—diverges from the guidance provided by the Treasury Department.
Among the signatories are firms like Coinbase, Paradigm, and Kraken, who argue that this interpretation overlooks the Financial Crimes Enforcement Network’s (FinCEN) 2019 recommendations, which clarify that developers who do not take custody of user funds should not be classified as money transmitters.
“The DOJ’s new policy position…introduces confusion and uncertainty, coupled with the possibility of criminal liability,” the letter emphasizes. “In effect, all blockchain developers could face prosecution as criminals.”
The issue of ‘unlicensed’ money transmitter operations in crypto
Section 1960 of the U.S. Code makes it a crime to operate an “unlicensed money transmitting business.” However, cryptocurrency firms maintain that this should only be applicable to custodial services that actually hold and transfer user funds, rather than non-custodial software providers.
Traditionally, courts have looked to FinCEN’s regulations for compliance determination, but recent actions by the DOJ—such as those aimed at Tornado Cash developers—indicate a broader interpretation that could lead to increased prosecutions.
The letter cautions that if Congress does not step in, innovation within the U.S. cryptocurrency sector may be hindered, potentially driving developers to relocate abroad.
“The federal government should not engage in a game of bait and switch,” the letter states. “Congress ought to prompt the DOJ to amend its misapplication of the law and clarify Section 1960 to more accurately reflect congressional intent.”