When Prosecutors Ignore the Regulators
Only the courts or Congress can end this overreach. Here’s how.
A recent court filing in the Samourai Wallet case lays bare something deeper than a misapplication of the law. It shows a breakdown in the trust that software developers and innovators must be able to place in federal regulatory guidance. It’s a breakdown that puts American innovation at risk.
According to the defense’s May 5 filing, prosecutors in the Southern District of New York charged two developers with operating an unlicensed money transmission business—despite knowing from the start that the relevant regulator, FinCEN, did not believe the software they built constituted money transmission.
The filing includes a memo in which the prosecutors themselves summarize what they were told by FinCEN:
“Because Samourai does not take ‘custody’ of the cryptocurrency by possessing the private keys to any addresses where the cryptocurrency is stored, that would strongly suggest that Samourai is NOT (emphasis in the original) acting as an MSB.”
That memo was written before the indictment. DOJ withheld it from the defense and the public for more than a year. The case went forward anyway.
This is, of course, not an isolated incident. In the prosecution of Roman Storm, one of the developers of Tornado Cash, DOJ has brought similar charges against someone who never held custody of user funds. We are also aware of inappropriate investigations against other developers in this space. Even if these investigations are dropped, nothing currently stops the DOJ from simply restarting them and continuing its illegal war against devs. In all of these cases, prosecutors show a complete disregard for the longstanding 2019 FinCEN guidance that software developers who don’t take custody of funds are not money transmitters under federal law. Coin Center has supported that vital guidance since its release and we are, frankly, sick of seeing it ignored by prosecutors.
This is more than a legal misstep. It’s a violation of basic fairness—and a warning signal to anyone who builds or publishes general-purpose tools on the internet. When the agencies charged with interpreting the law speak, and yet their views are ignored or buried by prosecutors pursuing a contradictory theory, developers have no safe harbor.
You may recall that last month Deputy Attorney General Todd Blanche issued a memo calling for an end to this sort of “Regulation by Prosecution.” That was an encouraging development, however it is not enough. If SDNY can ignore plain statements from FinCEN then they can ignore or equivocate over the Blanche memo as well. The only solution is to actually fix this problem with law.
So how do we fix this?
There are only two real paths forward. One is through the court system. In Lewellen v. Garland, a Coin Center-supported lawsuit, Michael Lewellen, a software developer, is asking the courts to hold that publishing and maintaining non-custodial tools does not make him a financial institution or subject him to criminal liability under 18 U.S.C. § 1960. That case is a chance to draw a binding boundary—to make clear that statutes intended to regulate custodial money transmitters cannot be stretched to cover software development.
The other path is through legislation. The Blockchain Regulatory Certainty Act is a bipartisan bill that would codify the very guidance FinCEN already issued in 2019: that publishing non-custodial software is not money transmission. It wouldn’t change the law; it would simply stop prosecutors from ignoring it.
Until one of these reforms becomes law, developers in the U.S. will continue to wonder whether today’s guidance is tomorrow’s trap. That’s not how we build secure infrastructure. That’s not how we protect civil liberties. And that’s not how America remains the best place in the world to innovate.