A recent ruling by a US judge in the Southern District of New York has determined that software code used in crypto protocols like Tornado Cash does not qualify for First Amendment protection. The decision, delivered by Judge Katherine Polk Failla on Sept. 26, also sets a precedent for treating crypto protocols as money transmitters, even when developers do not control the funds being transmitted. The ruling has significant implications for the crypto industry, particularly for developer Roman Storm, who faces charges of money laundering, operating an unlicensed money-transmitting business, and evading US sanctions.
The judge’s ruling has broad implications for the ongoing legal battles involving crypto protocols like Tornado Cash and Samourai Wallet. The court agreed with US prosecutors that businesses like Tornado Cash and Samourai Wallet meet the criteria for money transmission, even without directly controlling the funds in question. Storm’s trial is set to begin on Dec. 2, and his legal team plans to appeal the decision. The outcome of this case could have a far-reaching impact on the accountability of blockchain technology developers under US law.
The decision has faced criticism from the crypto industry and beyond, with many expressing disappointment and concern about the potential expansion of developer liability. DeFi Education Fund chief legal officer Amanda Tuminelli stated that the consequences of the trial could be life-changing for Storm and other software developers in various industries. Variant chief legal officer Jake Chervinsky called the ruling a troubling precedent for software developers and an assault on their freedom. Despite these criticisms, the ruling clarifies the issue of whether crypto businesses can claim immunity from BSA requirements if they do not control the funds they help transmit.
The court’s decision addresses the broader crypto industry as regulators and legislators navigate how to apply existing financial laws to rapidly evolving technologies. Appeals are expected in this case, and further legal clarification may come as the proceedings continue. The ruling has sparked debate within the industry about the balance between regulatory compliance and innovation in the development of blockchain technology. Developers and industry stakeholders will be closely following the outcome of Storm’s trial and its implications for future legal challenges in the crypto space.
