Crypto Firms Demand Clarity from DOJ on Money-Transmitting Laws

In a March 26 letter addressed to key members of the Senate Banking Committee, House Financial Services Committee, and House and Senate Judiciary Committees, 34 cryptocurrency companies and advocacy groups, including Kraken and Coinbase, urged lawmakers to push for a revision of the DOJ's interpretation of money-transmitting laws.

The letter, led by the DeFi Education Fund, specifically criticized the DOJ's decision to charge the developers of Tornado Cash, a privacy-focused crypto mixer, under unlicensed money-transmitting laws. This interpretation of the law, according to the group, is "unprecedented" and overly broad, creating "confusion and ambiguity" for developers and potentially subjecting them to criminal prosecution.

The DOJ's position became widely known in August 2023, when it indicted Roman Storm and Roman Semenov, the developers of Tornado Cash, on money laundering charges. While Storm has been released on bail and pleaded not guilty, Semenov, a Russian national, remains at large.

The crypto group’s letter argues that the DOJ’s interpretation threatens to make it criminal for developers to create blockchain-based software without ever taking possession or control of user funds. This, the firms say, could potentially criminalize almost every blockchain developer in the U.S., stifling innovation in the space.

DOJ's "Conflicting" Position on Money Transmission

The letter also highlights a contradiction between the DOJ's interpretation and existing guidance from the Treasury’s Financial Crimes Enforcement Network (FinCEN). In 2019, FinCEN clarified that a software developer who doesn’t control customer funds is not considered to be operating a "money transmitting business." The letter argues that the DOJ has ignored this guidance and is instead applying an overly broad interpretation of money-transmitting laws, which could lead to inconsistent and potentially unfair legal outcomes for U.S.-based developers.

The letter pointed to two key sections of the U.S. Code: Title 31, Section 5330, which outlines licensing requirements for money transmitting businesses, and Title 18, Section 1960, which criminalizes the operation of an unlicensed money transmitting business. While the DOJ has chosen to disregard the definitions in Section 5330 when applying Section 1960, the letter argues that these definitions are intended to align.

Consequences for U.S.-Based Blockchain Innovation

The group warned that the DOJ’s actions could have serious consequences for the future of blockchain development in the United States. With this broad interpretation of money transmission, developers fear that they could face criminal charges simply for creating non-custodial software that facilitates cryptocurrency transactions without holding customer funds.

The letter emphasizes that if this interpretation remains unchallenged, it could significantly hinder U.S.-based innovation in the blockchain space, as developers would be fearful of criminal prosecution for simply building decentralized technologies.

The concerns over legal uncertainty have already been highlighted by several figures in the industry, including Michael Lewellen, a fellow at the crypto advocacy group Coin Center. In January 2024, Lewellen sued Attorney General Merrick Garland to declare the release of non-custodial software legal and to block the DOJ from prosecuting individuals under the money-transmitting laws.

Lewellen argued that the DOJ's approach to criminally prosecute developers publishing cryptocurrency software has extended the interpretation of money-transmitting laws “beyond what the Constitution allows.”

Call for Congressional Action

The coalition of crypto firms is urging Congress to step in and address what they see as an overreach by the DOJ that could effectively end blockchain innovation in the U.S. unless there is clarity on the legal implications for developers. They ask Congress to ensure that the DOJ adopts a fair and consistent approach to regulating blockchain and crypto technology development, one that does not stifle innovation or expose developers to unnecessary legal risks.

For more information on the ongoing debate and how it could affect the cryptocurrency industry, visit the DeFi Education Fund and Coin Center.