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Tornado Cash Appeal to Dismiss Criminal Charges Rejected, Precedent for Crypto Mixers and Privacy before Samourai Wallet Case?

Last Updated April 29, 2024 2:06 PM
Eddie Mitchell
Last Updated April 29, 2024 2:06 PM
Key Takeaways
  • Privacy-preserving services such Tornado Cash and Samourai Wallet are in the crosshairs of U.S. lawmakers
  • The DoJ’s arguments on what constitutes a money-transmitting business could have major implications for privacy and DeFi.
  • The crypto community has criticized the DoJ’s interpretation and application of these laws.

Tornado Cash co-founder Roman Storm has had his appeal to conspiracy and money laundering charges rejected.

In the latest development, the U.S. Department of Justice (DoJ) has firmly opposed  a motion to dismiss criminal charges against him, and the nuance of the case raises some existential questions about the future of privacy-preserving crypto and services.

Legally Defining Crypto Mixers

Storm’s attorneys sought to dismiss the indictment because Tornado Cash isn’t a custodial mixing service nor had any control over the service, users’ wallets, assets, or charged a fee for transmitting funds. Therefore, the attorneys claim it cannot be deemed as a “financial institution”, let alone a money-transmitting business.

As per the DoJ’s response , the Tornado Cash service is a money transmitter “with a single function – transferring fixed-quantity customer deposits from one location to another.”

As per U.S. law , a money transmission business can broadly be defined as:

“[…]transferring funds on behalf of the public by any and all means including
but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier.”

The response extends itself to a company accepting and transmitting currency, assets, or “value that substitutes for currency by any means. Following this, it adds a rather strong secondary argument.

The DoJ argues that businesses engaged in this manner can include those using “informal” means to transfer money, either in or outside of, the conventional financial system. As such, decentralized finance (DeFi) platforms and services may also fall into the legal definition.

Are DeFi Operators Money Transmitters?

One of the central arguments from prosecutors against Samourai Wallet, as echoed in the Tornado Cash trial, is that the platform had a centralized coordination service without implementing know-your-customer (KYC).

Amongst many of the allegations in the Tornado Cash trial, the DoJ prosecutors argue that the definition of “money transmitting”, as outlined in U.S. law , doesn’t require the transmitter to have “control” over the transfer.

Prosecutors argue that the term “transfer” doesn’t warrant “control” over the transferred assets, but it does extend itself to transfers made on “behalf of the public by any and all means.”

This is a rather broad definition that some believe could set a bad, if not dangerous precedent for crypto and the Internet overall. Naturally, the crypto community was quick to retort.

Based on the DoJ’s broad logic, the crypto community argued that any provider broadcasting financial transactions, including Internet Service Providers (ISPs) or even your laptop, could now be money service businesses.

Samourai Wallet Trial

Bearing many similarities to the ongoing battle between the U.S. Securities and Exchange Commission (SEC) and Ripple (XRP), the Tornado Cash trial could set a precedent for crypto. More specifically, for crypto privacy, mixers, and perhaps DeFi overall.

As we reported last week, prosecutors argue that Samourai Wallet co-founders Keonne Rodriguez and William Hill have been operating an unlicensed money transmitter business, and conspired to commit money laundering through their platform.

The Tornado Cash and Samourai wallet charges raise some interesting questions for self-custodial wallets and privacy-preserving services such as crypto mixers.

The DoJ argues that Samourai wallet was operated through a centralized server, which “supervises and facilitates” transactions. However, many have pointed out that they have no control over the transaction process and are decided entirely by the users. In this context, Samourai is (arguably) passively passing the transaction message.

Setting the Standards

Removing the allegations of money laundering out of the equation for a moment, whether or not the Tornado Cash trial could result in DeFi operators becoming money transmitters could have major implications for crypto.

But, with regards to the DoJ’s arguments that could turn decentralized crypto platform operators money transmitters, crypto-centric lawyer Gabriel Shapiro noted that he wasn’t worried, yet.

Just like the SEC Vs XRP, this may be a lengthy case where lawmakers and regulators are forced to dive into the many, many nuances of crypto technologies.

Whilst there could be truth regarding the criminal activity/intent of the creators and users of crypto mixers, there is little clarity on whether or not their existence or ‘normal use‘ constitutes any legal wrongdoing.

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