The Trump administration's handling of significant cryptocurrency cases was not much different from that of the Biden administration.
Donald Trump promised to make the U.S. "the world's crypto capital," and many actions seemed to back up his commitment. For instance, he appointed officials who publicly "supported crypto," such as Treasury Secretary Scott Bentsen and new SEC Chairman Paul Atkins. His party controlled both houses of Congress and drafted legislation that would greatly benefit the crypto industry. Of course, he was also the proud owner of Trump-branded meme coins and stablecoins.
However, the extreme legal threats that cryptocurrency faced during the Biden administration—many in the industry believed this was the reason they supported Trump in the last election—remain unchanged.
The most prominent example is the case of the Ethereum-based privacy tool Tornado Cash. Advocates had hoped that the Trump administration would completely alter its stance on Tornado Cash, especially with the Department of Justice (DOJ) possibly dropping charges against one of its developers, Roman Storm. This hope was strengthened by a memorandum released by Trump's Deputy Attorney General Todd Blanche in April, which stated that Trump's DOJ would terminate the "reckless litigation-driven regulatory strategy" of the previous administration, echoing the common criticism of the Biden administration by crypto advocates.
Nevertheless, last month, federal prosecutors from the Southern District of New York revealed in a letter to the judge overseeing the case that they still plan to pursue almost all charges against Storm.
When combined with subtle legal maneuvers by the Treasury Department in March to remove Tornado Cash software from the sanctions list, it seems that the new administration does not yet plan to quell the litigation fears that have troubled many crypto developers for nearly three years.
A Small Victory
In the letter from prosecutors in the Southern District of New York, there was indeed a concession that seemed minor in Storm's case but has significant implications in the broader legal conflict. The letter notified the judge that federal prosecutors would drop one of the charges accusing Storm of running an "unlicensed money transmitting business."
Storm and another developer, Roman Semenov, were indicted in 2023. The indictment claims that North Korean hackers used Tornado Cash to launder stolen cryptocurrency worth hundreds of millions of dollars from the video game Axie Infinity. The indictment charges Storm and Semenov with conspiracy to launder money, conspiracy to violate sanctions against North Korea, and conspiracy to operate an unlicensed money transmitting business. Storm was arrested in August 2023 and is scheduled to stand trial in July this year. Semenov has yet to be arrested.
The charge of operating an unlicensed money transmitting business has been one of the most angering for the crypto policy community and has made many in the industry feel betrayed by the government.
Under the U.S. Bank Secrecy Act (BSA), money transmission businesses must register with the Treasury Department's Financial Crimes Enforcement Network (FinCEN). In 2019, FinCEN issued guidance widely interpreted as stating that money transmitters must have "full independent control" over users' funds.
Tornado Cash's smart contract design ensures that only users control their funds. Therefore, the 2019 FinCEN guidance suggested that Tornado Cash did not need to register.
However, last spring, DOJ prosecutors argued the opposite in a filing to the court: even without controlling users' funds, one could still be considered a money transmitter. Shockingly, the judge agreed with the DOJ's viewpoint.
This clearly created a "rule of law problem," as stated by Peter Van Valkenburgh, executive director of policy research and advocacy organization Coin Center. "To me, if regulators initially say you don't need a license, then no one should be charged for failing to get a license," he said at the Project Glitch Privacy Summit in Washington, D.C., last October.
The DOJ seems to have changed its mind. Last month, it announced it would no longer pursue the charge against Storm for failing to register with FinCEN. Van Valkenburgh described this as "big news." On the other hand, this is the only charge the government has backed down on since Blanche's memorandum was released. Although the DOJ acknowledged that no registration was required, it still charges Storm with running an unlicensed money transmitting business. Prosecutors cite another provision in the law, claiming that even without a license, the transactions "involved the transfer or transmission of funds," and that Storm allegedly knew these funds were from criminal activity.
Confused? You’re not alone. "This makes no sense," Van Valkenburgh said at the monthly PGP* for Crypto insider meetup in Washington, D.C. "If you're going to charge them with an unlicensed money transmission crime, but no one asked them to get a license—how crazy is that?"
The DOJ used the same argument in another criminal case involving Bitcoin privacy tool Samourai Wallet developers Keonne Rodriguez and William Lonergan Hill, dropping their charges of not having a license but continuing to accuse them of conspiring to run an unlicensed money transmitting business. This case recently highlighted the divergent views of FinCEN and the DOJ on what constitutes a money transmission business. The defense team publicly released a summary of a phone call between federal prosecutors and two FinCEN staff members, where FinCEN representatives argued that, since Samourai does not control user funds, this "strongly suggests" that it is not a money transmitting business.
The continuation of these charges dashed hopes that Blanche’s memorandum would mark a complete shift in the DOJ's policy. Amanda Tuminelli, executive director and chief legal officer at DeFi Education Fund, a Washington, D.C. policy advocacy organization, stated at the PGP* for Crypto panel discussion that some parts of the memorandum were beneficial to the industry. "I think the spirit of the memorandum is good," she said. "But in the high-risk conflict over what constitutes a money transmission business, 'it didn't solve anything.'"
Tuminelli believes Congress should amend the criminal law "to completely eliminate the possibility of further misunderstandings" and clarify that the law does not apply to software developers who do not control or hold customer funds.
The North Korean Factor
Additionally, there is the issue of the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) sanctioning Tornado Cash in 2022. Coin Center and other organizations have sued OFAC, claiming that it had no right to sanction decentralized software. In November last year, the cryptocurrency industry launched an aggressive lawsuit against the government in one of these cases. The Fifth Circuit Court of Appeals ruled that OFAC had no right to sanction Tornado Cash's "immutable" smart contracts because these contracts were not "property." In March of this year, the Treasury Department removed these smart contracts from the sanctions list.
But several important signals suggest the government is not ready to back down on this issue.
First, Michael Mosier, co-founder of Arktouros Law and former OFAC official and FinCEN director, pointed out that the Treasury Department did not characterize this action as an admission of error. Instead, the agency stated it "decided to lift the economic sanctions" on its own. Mosier noted in a recent speech in Washington, D.C. that this was a "very cautious response" to the Fifth Circuit’s ruling. The agency may be preparing for further actions.
The second important signal is how the government is handling the sanctioned Tornado Cash developer, Russian national Roman Semenov.
Some background: OFAC initially sanctioned Tornado Cash software under President Obama's 2015 executive order targeting cybercrime. In November 2022, OFAC re-imposed sanctions, adding a designation based on another Obama-era executive order aimed at preventing North Korea from funding its nuclear weapons program. In August 2023, OFAC added developer Roman Semenov to the sanctions list under both executive orders.
In March, OFAC removed the network crime and North Korea-related sanctions against Tornado Cash but kept Semenov on the North Korea sanctions list.
Mosier explained, "The enforcement authority for North Korea-related projects is much broader than for more general cybersecurity orders." This means the government will have an easier time defending such actions in court. Mosier believes that the Treasury's removal of Semenov's network sanctions label, while keeping him on the North Korea sanctions list, is sending a message. "Removing the network sanctions label but keeping the North Korea sanctions label sends a strong signal to Congress and global developers: 'We're not leaving this space.'"
Despite Trump’s love for cryptocurrency, his administration seems, like Biden's, to oppose certain types of cryptocurrency.