In a landmark ruling that immediately incensed the crypto community, a US judge has clarified that as a matter of law, control of money is not a prerequisite for operating a money transmitter.

Specifically, business operators may not disclaim responsibility for Bank Secrecy Act (BSA) requirements simply because they avoid controlling money during its transmission.

The decision has significant implications for the crypto industry, particularly for the legal cases involving Tornado Cash and Samourai Wallet.

In an oral ruling on Thursday, a US District Court judge for the Southern District of New York settled this hotly contested issue in the government’s favor. Crypto industry defendants believed that business operators must control money in order to transmit money. The government has argued for years, and repeated in an April 26 filing, that control of funds is not a statutory requirement.

“If Congress had intended that control of the funds was a requirement, it could have said as much in the plain text of the statute. It did not,” explained US Attorneys. This argument prevailed.

Tornado Cash, Samourai, and money transmission requirements

Thursday’s decision is terrible news for Tornado Cash and Samourai co-founders facing criminal charges for their alleged BSA violations.

Both defendants had argued that they did not control the coins within their mixing services and therefore could not be designated as money transmitting businesses.

Judge Katherine Polk Failla disagreed, allowing the government’s case against them to proceed.

In explaining her ruling, the judge further noted that ‘control’ of funds while transmitting money is just one of four distinct tests that courts use to determine the applicability of BSA requirements to a seemingly money-transmitting business.

Four qualities of a money transmitter

1. Accepting funds: Whether the business accepts money or value from customers.
2. Transmitting funds: Whether the business moves money or value between locations or persons.
3. Control of funds: Whether the business has control over the funds during the transmission process.
4. Providing instructions for funds: Whether the business instructs other entities to make funds available to recipients.

US prosecutors have argued that crypto services like Tornado Cash and Samourai were unlicensed money transmitting businesses whose founders have violated BSA and 31 U.S. Code § 5330 requirements such as sanctions enforcement. Prosecutors used the formal, legal definition of money transmitting business when classifying Tornado Cash and Samourai.

Because Thursday’s oral ruling does not yet have a written opinion from the judge, more clarification will arrive soon from the Southern District of New York once her order is signed and filed.

Pro-crypto defenders like Amanda Tuminelli and Jake Chervinsky of the DeFi Education Fund have voiced disappointment, viewing it as a potential threat to software developers’ free speech.

Read more: DoJ claims Tornado Cash indictment is not about ‘free speech’

The ruling is a significant clarification of a contentious area of law. For now, the law of the land is that money transmitters do not necessarily need to control funds during their transmission. Defendants intend to appeal the ruling.

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The post Judge rules crypto protocols can be money transmitters without control appeared first on Protos.

Bitcoin privacy and coin mixing service Samourai is having a big week in court, with both co-founders facing charges of conspiracy to launder money and conspiracy to operate an unlicensed money transmitter in the Southern District of New York.

William Lonergan Hill and Keonne Rodriguez are accused by the FBI of facilitating at least $100 million worth of money laundering transactions for illegal operatives. 

Although the two men appeared together in a US courtroom for the first time this week, there wasn’t much legal action of consequence. Nevertheless, proceedings in another coin mixer case involving are set to have a significant bearing on Samourai’s defense.

First things first, the duo opened their day on Wednesday in front of the judge to request a delay of their trial date. They asked for more time to review several terabytes of discovery data that they received less than five weeks ago.

Despite characterizing the size of the data through metaphors like “to the moon and back 22 times” or “75% of the amount of information in the Library of Congress,” the judge denied their request and scheduled a follow-up hearing to discuss the data for December 17 at 10am.

Rodriguez also requested freedom from home detention and his physical geolocation tracker, however, the judge denied this request.

Read more: Who are Samourai Wallet’s Keonne Rodriguez and William Lonergan Hill?

Control of user funds: Precedent from Tornado Cash

Despite the topic of Samourai’s control of users’ funds not coming up during this week’s court proceedings, because Tornado Cash and Samourai were similar privacy and coin mixing services, some of their legal issues overlap.

Specifically, whether Tornado Cash or Samourai ever controlled their users’ funds while transmitting them is a critical legal issue.

By deciding an issue in the Tornado Cash case (U.S. v. Roman Storm and Roman Semanov), US District Court Judge Katherine Polk Failla will set precedent over whether Samourai’s ‘control’ (or lack thereof) of its users’ coins was a prerequisite for its operation of an unlicensed money transmission business.

For context, Hill and Rodriguez argue that they never controlled users’ bitcoin through Samourai, supposedly making it impossible for them to have transmitted money that they never controlled in the first place. The FBI disagrees, arguing emphatically that control of money is not a prerequisite of money transmission.

Roman Storm is on a $2 million bond to appear in court on November 30. By that date, legal experts anticipate that Judge Failla will announce her decision over the contentious ‘control’ issue in the Tornado Cash proceeding.

If Judge Failla decides that control is a prerequisite for money transmission, it will be a win for Samourai. If the judge decides that control is not a prerequisite, Samourai’s co-founders’ arguments that they never controlled users’ funds will lose a substantial portion of its defensive power.

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The post Samourai and Tornado Cash both pinning hopes on upcoming ruling appeared first on Protos.

Phoenix Wallet, a non-custodial Bitcoin lightning wallet, has announced that it’s being removed from US-based app stores and encouraged users to make sure to empty their wallets. 

This decision seems to have been made by ACINQ, the company behind Phoenix Wallet, which stated in a tweet that “recent announcements from US authorities cast a doubt on whether self-custodial wallet providers, Lightning service providers, or even Lightning nodes could be considered Money Services Businesses and be regulated as such.” 

Read more: What to do if you’ve used Samourai Wallet

Recently, the founders of Bitcoin mixing wallet Samourai were indicted in the Southern District of New York under allegations that they facilitated illegal transactions, including laundered funds. 

This was followed by the Federal Bureau of Investigation issuing a warning in which it informed users that it had begun ‘operations’ on a variety of unregistered crypto firms that it believed were money services businesses and told users that they may experience ‘financial disruptions.’ 

These latest crackdowns follow a long history of US authorities pursuing wallets and mixers. This has included sanctioning addresses used for Tornado Cash, convicting the operator of the Bitcoin Fog mixer, and many others.

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So, you’ve used the bitcoin mixing service Samourai Wallet. Its founders have been arrested, its domain is seized, and five different law enforcement agencies have issued joint press releases about the alleged crimes it perpetrated. What should you do?

To begin, you should probably do what you should have done in the first place — follow the law. While it’s almost always legal to transact online, store data on Bitcoin’s blockchain, and use node and wallet software, it is illegal to use Bitcoin to do certain other things.

For example, it is a crime to evade taxes; to intentionally launder the proceeds of others’ crimes; or to conspire with or assist others in breaking the law.

It’s also a crime to avoid cash-like reporting requirements — and there are many cash reporting requirements. For example, most US business owners who pay any worker more than $600 (soon rising to $5,000) per year need to file a Form 1099. Most cash-like transactions exceeding $10,000 are also subject to Form 8300 reporting requirements.

While a full discussion of the legality of Samourai or other coin mixers is beyond the scope of this article, ensuring that you follow the law should remain your top priority.

Read more: Who are Samourai Wallet’s Keonne Rodriguez and William Lonergan Hill?

How to stay private without Samourai Wallet

Next, and assuming you have always followed the law, there are some practical steps you can take to disentangle yourself from the shuttered coin mixer. Although it’s generally legal to use privacy tools for non-criminal purposes, Samourai Wallet is seized and no longer operates.

Moreover, many coin mixers have suspended coin mixing services, including Sparrow Wallet’s integration with coin mixer Whirlpool. Sparrow terminated that privacy service a couple of hours ago.

Therefore, if you want to keep your bitcoin private, you must use the rapidly dwindling services that remain.

Bull Bitcoin founder and privacy advocate Francis Pouliot wrote a quick how-to guide. He recommends a series of actions that could remove a leak of your Bitcoin wallet’s xpub (the master index of all public keys belonging to one private key). Spoiler alert: It’s hard work.

First, a user following Pouliot’s suggestion would need to create several wallets using Wasabi, a European coin mixing service that competed with Samourai. Next, the user should send each UTXO of their bitcoin balance to unique Wasabi wallets. Finally, they should initiate CoinJoin or Join Market transactions to anonymize bitcoins from those wallets.

If a user carefully follows these steps, Pouliot argues, they should be able to privately disentangle their Bitcoin wallet from Samourai’s shuttered service.

Good luck!

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Samourai Wallet has had its website seized, its app removed from the Google App Store, and two of its lead developers — Keonne Rodriguez and William Lonergan Hill — arrested.

According to a press release from the Department of Justice (DoJ), 35-year-old Rodriguez and 65-year-old Hill helped to move $100 million worth of laundered funds and facilitated over $2 billion worth of unlawful transactions.

Samourai Wallet, a cryptocurrency mixing service, was well-known in the industry for its abrasive social media presence and for flouting rules and regulations. It also welcomed Russian oligarchs to the platform when US sanctions began.

According to Rodriguez’s LinkedIn profile, he’s an Oxford graduate, and Hill says he attended the French National Conservatory of Arts. The pair are listed as directors of a now-dissolved UK company called Katana Cryptographic LTD and both claim to have held positions at a company called Consign Holdings AB.

Read more: Vitalik Buterin endorses one of North Korea’s favorite coin mixers, Railgun

What else do we know?

Last year a Toronto-based cryptocurrency investment company called Cypherpunk Holdings apparently invested over $100,000 CAD in Samourai Wallet, though how it planned to earn money on the investment is unclear. Additionally, Hill was CTO at Soie LLC, a Wyoming-based company that was “seed funding privacy projects.” The X profile for the company is simply retweets of endorsements for Samourai Wallet.

It’s also worth noting that while the ‘samouraiwallet dot com’ website shows a seizure notice from numerous governmental agencies, the actual domain listed by the DOJ — samouraiwallet dot io — doesn’t have a seizure notice and is simply a broken link.

This may have to do with the fact that the US almost exclusively seizes dot com, dot net, and dot org domains.

Additionally, other services created by the developers at Samourai, such as its blockchain explorer OXT, are still up and running.

Rodriguez and Hill face two charges, one for conspiracy to commit money laundering (which carries a possible 20-year sentence) and another charge for conspiracy to operate an unlicensed money-transmitting business. This carries a possible five-year sentence.

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