The DOJ Crypto Memo Is Not A Carte Blanche
The Deputy Attorney General has asked the DOJ to stop targeting developers for the conduct of their users. But the issued memo appears to deliberately leave the door wide open to do exactly that.
- The Attorney General's memo is widely celebrated throughout the media, but it seems to lack significant clarity on what developers are protected from
- What constitutes knowing and willfull offenses for non-custodial or immutable software, as well as what constitutes other means of transferring and transmitting funds under Section 1960, continues to be undefined
- The subsection used to charge both Samourai Wallet and Tornado Cash developers is specifically named as out of scope
Last night, Deputy Attorney General Todd Blanche issued a memo to Department of Justice employees titled "Ending Regulation By Prosecution," calling the digital assets industry "critical to the Nation's economic development and innovation."
Citing the President's Executive Order to Strengthen American Leadership in Digital Financial Technology, Blanche states that "clarity and certainty regarding enforcement policy are essential to supporting a vibrant and inclusive digital economy and innovation in digital assets."
The Justice Department has been tasked with "protecting and promoting [...] the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution," the memo reads.
To fulfill these tasks, "the Department will no longer target virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or unwitting violations of regulations."
"JUST IN: US JUSTICE DEPARTMENT SAYS IT WILL NO LONGER TARGET SELF-CUSTODY #BITCOIN WALLETS AND PRIVACY SERVICES," writes 'Bitcoin Historian' Pete Rizzo on X. "SOVEREIGNTY AND PRIVACY ARE WINNING."
"The U.S. Department of Justice notified staff it’s disbanding the crypto investigation unit, directing employees to focus on 'prosecuting individuals who victimize digital asset investors' and not exchanges, mixers like Tornado Cash, and 'offline wallets'", writes the news aggregator Documenting Bitcoin similarly on X, likely referring to an article published on Fortune, which referenced Tornado Cash as an example of a service that may possibly be safe from prosecution.
ACINQ, the company behind the popular non-custodial Lightning wallet Phoenix Wallet, which announced their withdrawal from US markets in light of the Samourai Wallet prosecution due to regulatory uncertainty, announced yesterday that it will be returning its services to US markets following the Deputy Attorney General's memo, writing that the company welcomes "the clarity it provides for developers and operators of Bitcoin software."
But the statements made by the Deputy Attorney General appear far from establishing the desired clarity regarding the liability of software developers that the media is advertising.
Devs aren't liable for user behavior – under certain circumstances
The above statements made in the memo are contingent on a certain set of priorities articulated by the Deputy Attorney General.
First, looking at charges for unlicensed money transmission under Section 1960 as well as violations of the Bank Secrecy Act, "unwitting violations of regulations" appears to moot the statements on regulation violations made.
Merriam Webster defines the term "unwitting" as unknowing, unintentional, or not done on purpose. But both Section 1960 and the Bank Secrecy Act require the prosecution to prove mens rea – meaning a guilty mind – to bring charges against entities or individuals. Under existing law, the DOJ has never been able to charge "unwitting" regulation violations in the first place.
Taking the prosecution of both Samourai Wallet and Tornado Cash developers as an example, in which the Government argues that the parties knowingly and willfully violated regulations, it seems unclear what the memo would change regarding such allegations.
Second, similar to statements made last week by the Treasury, the Deputy Attorney General asks the DOJ to prioritize "cases involving use of digital assets in furtherance of unlawful conduct by cartels, Transnational Criminal Organizations, Foreign Terrorist Organizations, and Specially Designated Global Terrorists," stating that such groups were increasingly turning toward digital assets (and again claiming that Hamas used cryptocurrency to fund its operations, which has long been debunked).
While the memo states that "the Department will pursue the illicit financing of these enterprises by the individuals and enterprises themselves, including when it involves digital assets, but will not pursue actions against the platforms that these enterprises utilize to conduct their illegal activities," it also states that "charging decisions must be based upon the facts and evidence of each particular case."
Specifically, the Deputy Attorney General asks the DOJ to "hold accountable individuals who [...] use digital assets in furtherance of other criminal conduct, such as fentanyl trafficking, terrorism, cartels, organized crime, and human trafficking and smuggling."
The open question appears to be: whom does the DOJ consider to be an individual who uses "digital assets in furtherance of criminal conduct?"
Again, it thereby seems unclear how the memo would affect prosecutions like those of the Samourai Wallet and Tornado Cash developers, in which the Government is painting the developers to have deliberately developed privacy tools precisely for the furthering of said offenses.
Third, the memo carves out an exception for Section 1960 subsection (B)(1)(c), stating that the subsection is "outside the scope of this policy."
Subsection C deems 1960 to apply to offenses which "otherwise involve the transportation or transmission of funds that are known to the defendant to have been derived from a criminal offense or are intended to be used to promote or support unlawful activity."
As Amanda Tuminelli of the DeFi Education Fund points out on X, it is this subsection that is "at the heart of the Storm and Samourai Wallet cases."
In both prosecutions, the Government paints Tornado Cash and Samourai Wallet developers to knowingly and willfully have operated a service used by money launderers and terrorists to enrich themselves financially.
To make their case, prosecutors cite Samourai Wallet marketing material, in which the developers advertised their service to criminal actors. In the case of Tornado Cash, prosecutors cite internal chat records, in which the developers discussed criminal funds flowing through their service.
The memo appears to make no interpretation of the language used in 1960 subsection C, which is currently at issue. The much needed clarity as to what otherwise transmit or transport means, as well as what constitutes willfulness in a service that is non-custodial or immutable, appears to continue to be left up to the courts to litigate.
That the Deputy Attorney General has asked the DOJ to "not pursue cases against [...] mixers like Tornado Cash," as reported by Fortune and widely amplified throughout the media, appears to be an interpretation that is not necessarily supported by the language of the memo used.
As Zack Shapiro of the Bitcoin Policy Institute writes on X, the memo is "great news, but important not to over read this," highlighting that both the Samourai Wallet and Tornado Cash prosecutions continue to potentially set dangerous precedents.
"We will wait to see what happens with the Tornado Cash and Samourai Wallet prosecutions," writes CoinCenter's Peter van Valkenburgh on X. "But the memo from the Deputy Attorney General yesterday is right on target: we should be going after bad guys. Not the developers of good tools that bad guys happen to use."
Help fund independent journalism: donate to our Geyser Fund
What the DOJ's new strategy means in practice is left up to future proceedings
The Deputy Attorney General notes that "the Department of Justice is not a digital asset regulator," highlighting the prior Administration's "reckless strategy of regulation by prosecution, which was ill conceived." The Department of Justice will no longer pursue such strategies, Blanche writes.
For example, in van Loon vs. the Department of the Treasury, the Fifth Circuit had found that the agency had overstepped its authority by placing Tornado Cash on OFAC's sanctions list, alleging that the agency attempted to rewrite the law – a task that should be left up to Congress.
This should be good news for both the Samourai Wallet and Tornado Cash developers. In both cases, the defense is arguing that significant ambiguity exists in the current regulatory landscape, noting that the charges against the developers are conflicting with previous FinCEN guidance that has been widely interpreted to exempt non-custodial services from money service business licensing obligations. Under the impression of Samourai Wallet and Tornado Cash developers, their services therefore arguably operated in full scope of the law.
However, because the memo appears to give little guidance on what exactly the "reckless strategies" it is referring to are, it does not seems safe to use the memo as a basis to assume blanket protection from prosecution. For all we know, the DOJ continues to be of the impression that non-custodial services clearly fall in scope of section 1960.
Notably, the Deputy Attorney General states that "the Justice Department will fully participate in President Trump’s Working Group on Digital Asset Markets," where "the Department’s designees will identify and make recommendations regarding regulations, guidance documents, orders, or other items that affect the digital asset sector."
Additionally, the memo states, "the Department will participate in the preparation of a report to President Trump recommending regulatory and legislative proposals that advance the policies and priorities set forth in the President’s Executive Order" to advance digital asset innovation in the US.
"Ongoing investigations that are inconsistent with the foregoing should be closed," the memo reads, stating that the Office of the Deputy Attorney General will work with the Criminal Division and the Executive Office of United States Attorneys (EOUSA) to review ongoing cases for consistency with this policy.
Whether the prosecutions of Samourai Wallet and Tornado Cash developers meet the Deputy Attorney General's outlined criteria to qualify for closure appears to remain unclear given the numerous caveats implied.
The Justice Department disbanding its crypto investigation unit may be a good sign, but it may also be a sign that the Department will merely incorporate such tasks into its criminal investigations unit.
Particularly worrying should be the memo's focus on Executive Order 14157, entitled Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists, which aims for the "total elimination" of terrorist financing, human trafficking and cartel activity.
Highlighting the DOJ's focus on protecting investors and ensure innovation in digital assets in the US, we should remember that Treasury Secretary Scott Bessent clearly stated that "securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion.”
Until the cases have been reviewed by the agency and a definitive conclusion has been drawn, it seems safer to err on the side of caution.
Independent journalism does not finance itself. If you enjoyed this article, please consider donating to our Geyser Fund.
