On Mar. 26, an open letter signed by 34 crypto companies urged the U.S. senators and congressmen to correct the code interpretation by the Department of Justice, where the DOJ suggested that web3 developers like the Tornado Cash team were involved in “unlicensed money transmitting business” simply through creating an open-source software.
The letter doesn’t mention Tornado Cash or Samourai developers, who were prosecuted for their involvement in the creation of the respective Bitcoin mixer platforms. However, the letter is based on the Tornado Cash case. It saw the light of day following the recent removal of economic sanctions applied to Tornado Cash. The lifting of sanctions was a win for the crypto industry but not an ultimate victory, as the law interpretation by the DOJ created a precedent dangerous for other software developers.
What’s in this letter?
In the letter, the signees urged officials to revisit the code interpretation, noting that the DOJ’s policy position “creates confusion and ambiguity with the spectre of criminal liability, and ultimately threatens the viability of U.S.-based software development in the digital asset industry and other industries.” They concluded that “under this interpretation, essentially every blockchain developer could be prosecuted as a criminal.”
According to the letter, the term “money transmitting business” is mentioned in U.S. law twice–in the criminal code and the Bank Secrecy Act’s licensure requirements. The signees point out that according to the code, to participate in “money transmitting business,” one needs to possess and operate other people’s funds on their behalf. Without this possession, a “money-transmitting business” is something else. The developers creating noncustodial web3 platforms don’t have access to users’ funds. Moreover, platforms like Tornado Cash are decentralized and open-source. Also, it is not a business. Thus, the developers cannot be judged for “unlicensed money transmitting business.”
Here’s what the letter says:
“The DOJ has ignored both this guidance and precedent to pursue its new interpretation of ‘money transmitting business’ in the form of criminal indictments against individual software developers. The result: two separate U.S. government agencies with conflicting interpretations of ‘money transmission’ — an unclear, unfair position for law-abiding industry participants and innovators.”
The letter concludes that if the problem is left unaddressed, developers will end up working in risky and unclear conditions, not knowing if the DOJ is respecting the law. It may tarnish innovation in the U.S. and push many bright talents to seek fortune abroad.
The Tornado Cash case
Big companies like Coinbase, Kraken, Ledger, Exodus, Uniswap Labs, and many others signed the letter. Their concern is understood. They all wish the U.S. blockchain industry to prosper and develop in normal conditions where the code writers won’t be judged for the crimes committed by people who use their free software for bad.
The letter claims that the DOJ first used misinterpreted law in August 2023 for a criminal indictment. It clearly can be associated with the moment when Tornado Cash developers Roman Storm and Roman Semenov were charged with money laundering. While Semenov is at large, Storm has been released on bail and awaits trial. For him, the correction in the code interpretation by the DOJ can be vital.
Tornado Cash is not the only protocol whose developers got in trouble due to the DOJ’s misinterpretation of the law. Samourai wallet is another stark case. Its creators, Keonne Rodriguez and William Lonergan Hill, are facing serious charges associated with money laundering. The U.S. has blocked the service.
Many tech influencers, including famous whistleblower Edward Snowden, criticized the DOJ for prosecuting innovators instead of fighting real criminals. CryptoQuant CEO Ki Young Ju noted that punishing the Samourai founders is like punishing the knife inventors, instead of punishing those who use knives for crime.
Tornado Cash has been blocked since 2022 by the Office of Foreign Assets Control, but on Mar. 21, the Treasury announced it lifted sanctions against Tornado Cash, making it legal to use the mixer platform. However, the Treasury stressed that it is highly concerned about the use of Tornado Cash by state-backed hackers from the Democratic People’s Republic of Korea. The agency claims it will keep on sanctioning DPRK for the use of the stolen crypto for funding weapons of mass destruction. The estimation of money laundered via Tornado Cash by North Korean hackers amounts to $7 billion.
Although using Tornado Cash is not prohibited now, security experts warn that the service’s front end is compromised. Allegedly, it has a malicious JavaScript capable of stealing crypto from users. They call to ensure security before celebrating transaction privacy by using Tornado Cash again.
