A US judge has ruled that software code used in crypto protocols such as Tornado Cash does not qualify for First Amendment protection, rejecting arguments that the use of such code is protected as free speech.
The decision, handed down by Judge Katherine Polk Failla in the Southern District of New York on September 26, also sets a precedent for treating crypto protocols as money transmitters, even if developers have no control over the funds being sent.
The ruling has significant implications for the crypto industry, especially for Tornado Cash developer Roman Storm’s upcoming trial, scheduled for December 2.
Storm, who is accused of money laundering, running an unlicensed money transmission business and evading US sanctions, argued that his role in developing and implementing the Tornado Cash Protocol should be protected under the laws of freedom of expression.
Judge Failla rejected this argument, clarifying that while code may be expressive, its use to perform functions such as transferring money does not fall under the protection of freedom of expression.
Control over funds is not required
The judge’s ruling has broad implications for the ongoing legal battle surrounding crypto protocols such as Tornado Cash and Samourai Wallet.
Prosecutors have argued that both Tornado Cash and Samourai Wallet are unlicensed money-sending businesses that are not complying with U.S. sanctions laws, especially in light of Tornado Cash’s alleged involvement in facilitating cybercrime and sanctions evasion.
Judge Failla emphasized in her ruling that control of funds is not required to qualify as a money transmitter under the BSA.
The court agreed with U.S. prosecutors, who have argued that companies like Tornado Cash and Samourai Wallet meet the criteria for transferring money even without direct control over the funds in question.
Storm’s trial will begin on December 2 over the charges leveled against him by the US government. His legal team has indicated plans to appeal, as this case could have a far-reaching impact on how blockchain technology developers are held accountable under US law.
The industry is critical of the ruling
The decision has drawn widespread criticism from the crypto industry and beyond. Amanda Tuminelli, chief legal officer of the DeFi Education Fund, expressed disappointment with the ruling, saying developers’ liability could be expanded in unprecedented ways. She added:
“The consequences of this trial will be life-changing for Storm and potentially for software developers across industries.”
Meanwhile, Variant Chief Legal Officer Jake Chervinsky denounced the court’s ruling, calling it a troubling precedent for software developers. He said:
“Judge Failla’s ruling… is an attack on the freedom of software developers everywhere. This will go down in history as a perversion of the law and a mockery of justice.”
Despite these concerns, the ruling provides clarity on a contentious legal issue: whether crypto companies can claim immunity from BSA requirements if they don’t control the funds they help transfer.
The court’s decision also takes aim at the broader crypto industry, as regulators and lawmakers continue to grapple with how to apply existing financial laws to rapidly evolving technologies. Appeals are expected, and further legal clarification could come as the case progresses.
