In a landmark ruling that immediately incensed the crypto community, a US judge has clarified that as a matter of law, control of money is not a prerequisite for operating a money transmitter.
Specifically, business operators may not disclaim responsibility for Bank Secrecy Act (BSA) requirements simply because they avoid controlling money during its transmission.
The decision has significant implications for the crypto industry, particularly for the legal cases involving Tornado Cash and Samourai Wallet.
In an oral ruling on Thursday, a US District Court judge for the Southern District of New York settled this hotly contested issue in the government’s favor. Crypto industry defendants believed that business operators must control money in order to transmit money. The government has argued for years, and repeated in an April 26 filing, that control of funds is not a statutory requirement.
“If Congress had intended that control of the funds was a requirement, it could have said as much in the plain text of the statute. It did not,” explained US Attorneys. This argument prevailed.
Tornado Cash, Samourai, and money transmission requirements
Thursday’s decision is terrible news for Tornado Cash and Samourai co-founders facing criminal charges for their alleged BSA violations.
Both defendants had argued that they did not control the coins within their mixing services and therefore could not be designated as money transmitting businesses.
Judge Katherine Polk Failla disagreed, allowing the government’s case against them to proceed.
In explaining her ruling, the judge further noted that ‘control’ of funds while transmitting money is just one of four distinct tests that courts use to determine the applicability of BSA requirements to a seemingly money-transmitting business.
Four qualities of a money transmitter
- Accepting funds: Whether the business accepts money or value from customers.
- Transmitting funds: Whether the business moves money or value between locations or persons.
- Control of funds: Whether the business has control over the funds during the transmission process.
- Providing instructions for funds: Whether the business instructs other entities to make funds available to recipients.
US prosecutors have argued that crypto services like Tornado Cash and Samourai were unlicensed money transmitting businesses whose founders have violated BSA and 31 U.S. Code § 5330 requirements such as sanctions enforcement. Prosecutors used the formal, legal definition of money transmitting business when classifying Tornado Cash and Samourai.
Because Thursday’s oral ruling does not yet have a written opinion from the judge, more clarification will arrive soon from the Southern District of New York once her order is signed and filed.
Pro-crypto defenders like Amanda Tuminelli and Jake Chervinsky of the DeFi Education Fund have voiced disappointment, viewing it as a potential threat to software developers’ free speech.
Read more: DoJ claims Tornado Cash indictment is not about ‘free speech’
The ruling is a significant clarification of a contentious area of law. For now, the law of the land is that money transmitters do not necessarily need to control funds during their transmission. Defendants intend to appeal the ruling.
