Industry advocacy group DeFi Education Fund has brought together 35 crypto firms to address a letter to eight U.S. lawmakers asking them to “correct” the Justice Department’s (DOJ’s) interpretation of provisions of criminal law concerning the operation of an unlicensed money transmitting business.
The DOJ should not apply laws on money transmission businesses to software developers, the signatories argue. Although they do not refer to him by name, the letter writers have the U.S. government’s case against Tornado Cash developer Roman Storm in mind. He and his colleague Roman Semenov have been chargedwith conspiracy to operate an unlicensed money-transmitting business.
One definition of money transmission may be enough
The letter is addressed to the chairpersons and ranking members of the Senate Banking Committee, the House Financial Services Committee and both chambers’ Committees on the Judiciary.
U.S. Code Title 18 Section 1960 “Prohibition of unlicensed money transmitting businesses” is at the center of the disagreement between the crypto community and the DOJ. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) established a definition of unlicensed money transmission based on the Bank Secrecy Act in 2019, the letters said.
The letter writers argue that applying Section 1960 to software developers contrary to FinCEN guidance threatens all blockchain developers active in the United States. Furthermore, government agencies now have conflicting interpretations of money transmission, leading to “an unclear, unfair position for law-abiding industry participants and innovators.”
Among the signers of the letter were organizations such as Paradigm, A16z Crypto, Polygon Labs, Electric Coin Co., Filecoin Foundation, dYdX Trading, and many others.
This is not the first time the DOJ’s position on unlicensed money transmission has been criticized. In May, Senators Cynthia Lummis and Ron Wyden wrote to then-U.S. Attorney General Merrick Garland. They argued in detail that the DOJ’s interpretation of money transmission is incorrect and leaves parties such as internet providers and mail carriers open to prosecution.
Tornado Cash is no longer under sanction, but Storm is not off the hook
FinCEN sanctioned Tornado Cash in August 2022. On March 21, the sanctions were removed “based on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments.”
The crypto industry has steadfastly defended Storm. Paradigm co-founder Matt Huang told The Wall Street Journal, for example, “You wouldn’t throw Tim Cook in prison because criminals use iPhones.”
Storm faces up to 45 years in prison on one charge each of conspiracy to commit money laundering, conspiracy to commit sanctions violations and conspiracy to operate an unlicensed money-transmitting business. The money transmitting charge is the least serious. It could only contribute up to five years to his sentence. His trial will begin on July 14 after several delays and attempts by Storm to have the case thrown out.
Storm described Tornado Cash as a “non-custodial privacy protocol,” although it is better known in the crypto community as a mixer. It mixes users’ cryptocurrency up with other crypto, thus making the origin and destination of specific funds harder to track. The fact that the service does not take custody of the funds it handles is crucial for the Bank Secrecy Act, which uses a definition of money transmission that harmonizes with the FinCEN definition.
Tornado Cash was allegedly used to launder over $1 billion in criminal proceeds, including hundreds of millions of dollars stolen by North Korean hackers.
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