Cryptocurrency Regulation Debate Escalates as Senators Question DOJ’s Handling of Money Transmission Laws

In a recent development that will set the stage for a battle concerning cryptocurrency regulation, United States Senators Cynthia Lummis and Ron Wyden have penned a letter to Attorney General Merrick Garland, expressing their apprehensions regarding the Justice Department’s (DOJ) interpretation of money transmission licensing.

The letter, signed by both senators, raises concerns over the DOJ’s application of money transmission laws in the case against Roman Storm, the co-founder of crypto mixer Tornado Cash. Storm faces charges related to operating an unlicensed money transmission operation, among other serious allegations.

Central to the senators’ concerns is the discrepancy between the DOJ’s interpretation and established definitions outlined by the Bank Secrecy Act and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). According to Lummis and Wyden, non-custodial crypto service providers, like Tornado Cash, do not meet the criteria set forth in these definitions.

The senators argue that bitcoins and other cryptocurrencies have a clear, unilateral owner throughout the transaction process, eliminating any ambiguity regarding ownership. They assert that custody and control are the fundamental factors determining the occurrence of “acceptance and transmission” on crypto networks.

Highlighting FinCEN’s role as the primary interpretive authority on money transmission registration requirements, the senators caution against the DOJ’s broad application of its interpretation. They warn that such an approach could extend regulatory scrutiny to a wide array of services, including internet service providers and even the postal service.

Echoing similar sentiments, crypto advocacy groups filed a joint amicus brief in April with the Southern New York District Court, supporting Storm’s position. Storm’s legal team filed a motion to dismiss the charges in March, arguing that Tornado Cash did not meet the definition of a money transmission business.

However, prosecutors contend that Storm bears responsibility for operating Tornado Cash and allege that the service facilitated criminal activities. They accuse Storm of designing software that aided criminality and assert that Tornado Cash was involved in the transmission of funds derived from criminal offenses.

Storm, who was arrested in August on charges of sanctions violations, facilitating money laundering, and unlicensed money transmission, faces up to 45 years in prison if convicted. He has pleaded not guilty to the charges and is currently out on $2 million bail with travel restrictions.

The letter from Senators Lummis and Wyden underscores the growing debate surrounding cryptocurrency regulation in the United States and the reach of the SEC, highlighting the need for clarity and consistency in interpreting existing laws in the rapidly evolving crypto landscape. Perhaps a new administration will see this and force a clear outline so that compliance can be adhered to clearly by all in the industry as opposed to it being a guessing game.

Terry Jones
Digital Assets Desk