Bipartisan Senate Letter Urges DOJ To Rethink Its Stance on Bitcoin Privacy Software

• US Senators Cynthia Lummis and Ron Wyden have written a letter to the Department of Justice (DOJ) expressing their concerns over the recent enforcement action against Bitcoin privacy service, Samourai Wallet.
• The senators argue that the DOJ’s interpretation of what constitutes an unlicensed “money services business” contradicts both Treasury Department guidance and the intent of Congress.
• They warn that this interpretation could criminalize Americans offering non-custodial crypto asset software services.

In a recent development, US Senators Cynthia Lummis and Ron Wyden have urged the DOJ to reconsider its stance on Bitcoin privacy software, warning that its current interpretation could criminalize non-custodial crypto asset software services.

Protecting Bitcoin Privacy Tools

The senators’ letter was prompted by the DOJ’s recent arrest of the founders of Bitcoin mixer Samourai Wallet for allegedly operating an unregistered money services business. The service used CoinJoin transactions to enhance user privacy, making the flow of funds difficult to trace on the blockchain. However, the DOJ’s interpretation of the Bank Secrecy Act (BSA) could potentially classify such services as “money transmission”, leading to legal complications.

What Counts As Money Transmission?

The senators argue that the DOJ’s interpretation of the money-transmitting business statute is flawed. According to them, the definition of “money transmission” should be clear and specific to avoid capturing entities like internet service providers and postal code carriers. They also argue that the definition should not include crypto wallets where users maintain control of their private keys. The senators warn that subjecting developers of non-custodial crypto asset software to potential criminal liability could stifle innovation and undermine confidence in the DOJ’s respect for the rule of law.

DOJ’s Interpretation of Money Transmission

Contrarily, the DOJ posits that a money transmitter need not have actual control of the funds that it transfers. It likens money transmission to a USB cable transferring data between devices or a frying pan transmitting heat from a stove to the pan’s contents. The DOJ has also made it clear that a service does not have to be custodial in any way to be considered a money transmitter, and thus required to implement KYC/AML, register with FinCEN, etc. This interpretation has raised concerns among crypto users and service providers.

Conclusion

The senators’ letter highlights the ongoing debate over the regulation of crypto assets and the need for clear, specific definitions to avoid stifling innovation. As the DOJ continues to scrutinize crypto services, it remains to be seen how its interpretation of money transmission will impact the crypto industry and whether it will heed the senators’ call to reconsider its stance on Bitcoin privacy software.