A collective of 34 organizations from the cryptocurrency sector has dispatched a unified letter to leaders in Congress, urging them to take action regarding the Department of Justice’s (DOJ) “unprecedented and overly expansive” interpretation of the federal law that pertains to unlicensed money transmission.
This letter, which has been endorsed by companies such as Coinbase, Kraken, Uniswap Labs, Ledger, Consensys, Paradigm, and the DeFi Education Fund, highlights the DOJ’s recent application of 18 U.S.C. §1960 to software developers.
The DOJ’s interpretation first came to light during the August 2023 criminal indictment of Tornado Cash developer Roman Storm, who faced charges under Section 1960 for operating an “unlicensed money transmitting business.”
The signatories argue this signifies a shift from longstanding interpretations of the law and diverges from earlier guidelines provided by the Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury agency responsible for enforcing the Bank Secrecy Act (BSA).
### DOJ Interpretation vs. FinCEN Guidance
The controversy centers on the legal definition of a “money transmitting business,” as established in 31 U.S.C. §5330, which regulates licensing under the BSA, and 18 U.S.C. §1960, which penalizes unlicensed operations.
Both legal frameworks define money transmission as the act of transferring funds “on behalf of the public by any and all means.” However, FinCEN’s 2019 guidelines clarify that non-custodial software developers—those who do not take possession or control of user funds—should not be classified within this sphere.
The letter contends that the DOJ is disregarding this guidance and claims that the definition laid out in §5330 is irrelevant when interpreting Section 1960.
This disparity creates conflicting standards between FinCEN and the DOJ, putting developers at legal risk merely for publishing or maintaining non-custodial blockchain applications.
Moreover, developers who create DeFi applications, non-custodial wallets, or other blockchain-based tools could face felony charges, despite not exercising control over users’ assets.
They assert that transferring funds “on behalf of” another party necessitates actual possession and control of those funds. In the absence of that custody element, such actions should not be classified as money transmission.
The organizations caution that if the DOJ does not reassess its position or if Congress does not intervene, there may be a detrimental impact on open-source development in the U.S., as developers may opt not to release code that could be construed as enabling money transmission.
The letter ultimately concludes with a call for Congress to “prompt the DOJ to rectify its misinterpretation of the law and clarify Section 1960 to better reflect Congress’s intent.”