On March 26, an open letter endorsed by 34 cryptocurrency firms called upon U.S. senators and representatives to amend the Department of Justice’s interpretation of the law. The DOJ had suggested that web3 developers, such as those behind Tornado Cash, were engaging in “unlicensed money transmitting” simply by developing open-source software.
The letter, which does not mention Tornado Cash or the Samourai developers facing legal action for their roles in Bitcoin mixer projects, is fundamentally rooted in the concerns raised by the Tornado Cash situation. It emerged after the recent lifting of economic sanctions against Tornado Cash, a significant win for the crypto sector, yet it remains a partial victory; the DOJ’s legal interpretations set a troubling precedent for other software developers.
What’s in this letter?
The signatories urged lawmakers to review the DOJ’s code interpretation, emphasizing that this policy creates confusion and uncertainty about potential criminal liability, ultimately jeopardizing the prospects of U.S.-based software development in the digital asset sector and beyond. They concluded that “under this interpretation, virtually every blockchain developer could face criminal prosecution.”
The letter highlights that the phrase “money transmitting business” appears twice in U.S. legislation—once in the criminal code and once in the Bank Secrecy Act’s registration requirements. The signatories argue that, per the code, engaging in a “money transmitting business” necessitates managing and controlling other people’s funds on their behalf. Without such control, the definition of “money transmitter” changes. Developers of noncustodial web3 solutions do not have access to user funds, and platforms like Tornado Cash are decentralized and open-source. Therefore, the argument is made that developers cannot be charged with operating an “unlicensed money transmitting business.”
The letter includes the following statement:
“The DOJ has overlooked this guidance and precedent in favor of a new interpretation of ‘money transmitting business,’ leading to criminal charges against individual software developers. This situation results in conflicting interpretations of ‘money transmission’ by two separate U.S. government agencies — an unclear and unjust position for compliant industry participants and innovators.”
The letter warns that if the issues are not resolved, developers will find themselves in precarious and ambiguous situations, unsure if the DOJ is adhering to the law. Such uncertainty could stifle innovation in the U.S. and push many talented individuals to seek opportunities abroad.
The Tornado Cash case
The letter accuses the DOJ of initially misapplying the law back in August 2023 during a criminal indictment, a situation that closely aligns with the charges brought against Tornado Cash developers Roman Storm and Roman Semenov for money laundering. While Semenov is currently free, Storm has been released on bail and is awaiting trial. For him, a shift in the DOJ’s code interpretation could prove crucial.
Besides Tornado Cash, other protocols like Samourai wallet have also faced repercussions due to the DOJ’s misinterpretation of the law. The creators of Samourai, Keonne Rodriguez and William Lonergan Hill, are dealing with serious money laundering accusations. The U.S. has prohibited access to their service.
Numerous tech influencers, including notable whistleblower Edward Snowden, have criticized the DOJ for targeting innovators instead of addressing genuine criminal activity. The CEO of CryptoQuant, Ki Young Ju, pointed out that penalizing the Samourai founders is akin to punishing the inventors of knives rather than those who misuse them for criminal acts.
Tornado Cash has been under sanctions since 2022 by the Office of Foreign Assets Control, but on March 21, the Treasury announced it had lifted sanctions against Tornado Cash, allowing legal use of the mixer platform. However, the Treasury also expressed serious concerns about the utilization of Tornado Cash by state-sponsored hackers from North Korea, claiming it would continue sanctioning them for their involvement in the laundering of cryptocurrency for funding weapons of mass destruction, estimated at $7 billion.
While it is now permissible to use Tornado Cash, security experts warn that the service’s front end remains compromised, allegedly containing malicious JavaScript capable of stealing cryptocurrency from users. Caution is advised before celebrating transaction privacy with Tornado Cash once more.