Senators Cynthia Lummis and Ron Wyden have urged the Justice Department to reconsider its recent enforcement action against a popular Bitcoin privacy service, arguing that the DOJ’s interpretation of what constitutes an unlicensed “money services business” contradicts Treasury Department guidance and the intent of Congress. The Senators believe that the DOJ’s interpretation threatens to criminalize Americans offering non-custodial crypto asset software services, such as the founders of Bitcoin mixer Samourai Wallet who were recently arrested for allegedly operating an unregistered MSB.
The DOJ arrested the founders of Samourai Wallet for allegedly allowing criminals to use their service for money laundering by utilizing CoinJoin transactions to enhance user privacy. However, Samourai’s wallet only required a centralized server to coordinate CoinJoin transactions and did not involve controlling users’ actual funds. This has sparked a legal debate on whether such services should be considered as money transmission under the Bank Secrecy Act. The Senators argue that clear definitions are necessary to prevent other groups like internet service providers and postal code carriers from being incorrectly classified as MSBs.
The Senators believe that subjecting developers of non-custodial crypto asset software to potential criminal liability will stifle innovation and shake confidence in the DOJ’s respect for the rule of law. They argue that the DOJ’s interpretation of the money-transmitting business statute, which posits that a money transmitter need not have actual control of the funds being transferred, is problematic. The DOJ’s warning to crypto users about potential loss of funds in wallets provided by non-regulated entities has raised concerns about future prosecution by the department.
The DOJ’s interpretation of money transmission as not requiring actual control of funds and the comparison of it to a USB cable transferring data or a frying pan transmitting heat has raised questions about the scope of the definition of an MSB. The DOJ’s view that a service does not have to be custodial in any way to be considered a money transmitter has implications for the crypto industry and could lead to increased regulatory requirements such as implementing KYC/AML measures and registering with FinCEN. The contrast between the DOJ’s interpretation and the Senators’ views on the issue highlights the need for a clear definition of what constitutes an MSB in the crypto space.
Overall, the debate between the Senators and the DOJ underscores the challenges in regulating the crypto industry and ensuring that innovative technologies are not stifled by overly broad interpretations of existing laws. The outcome of this debate could have far-reaching implications for the development of crypto asset software and the privacy rights of users. It remains to be seen how the DOJ will respond to the Senators’ letter and whether there will be any changes in its enforcement actions against non-custodial crypto asset software services.
