US Government Launches All-Out Attack on Non-Carceral Challenge

Disclosure: The views and opinions expressed herein belong solely to the author and do not represent the views and opinions of the crypto.news editorial staff.

Developers of decentralized finance applications should pay attention to this. Federal agencies don’t care whether you control or ever control user funds. You are still liable under the Bank Secrecy Act (BSA). The Department of Justice (DoJ), Office of Foreign Asset Control (OFAC), and Securities and Exchange Commission (SEC) have targeted decentralized service providers. SamuraiTornado Cash, Consensys and more. Stocks directed at least two other companies—Phoenix Wallet And Wasabi wallet—to leave the American market completely.

Under the leadership of Gary Gensler, the SEC went so far as to target individual developers employed by startups creating decentralized technologies. The Commission request for a list of the names of Consensys developers who contributed any code, publicly or privately, to the Ethereum Merger, a September 2022 upgrade to the Ethereum blockchain that moved the network’s consensus method from proof of work to proof of participation. .

Measures like these undoubtedly have a chilling effect on decentralized and privacy-preserving technologies, as regulators now irrationally view developers as bankers (or perhaps as competitors to bankers).

Samurai Wallet

In April 2024, the Ministry of Justice charged Keonne Rodriguez and William Lonergan, both Founders of the self-custodial Samurai Portfolio. Both men were charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money services business. And this despite the fact that Samourai was not a bank. It simply provided software-automated financial processes.

Rodriguez’s lawyer plans file a motion to dismiss the case against his client and Lonergan. He will include a letter to U.S. Senators Cynthia Lummis (R-WY) and Ron Wyden (D-OR) sent to Attorney General Merrick Garland in which the two argue that non-custodial crypto software cannot be a money transmission service and that the DoJ is threatening to criminalize Americans offering non-custodial crypto asset software services. The representatives then went explain that “…users of these services retain sole possession and control of their crypto assets” and “…All transactions are signed and processed on the user’s local device without third party access.”

Tornado Treasury

In addition to the allegations against Samourai, Alexey Pertsev, a developer behind the Ethereum-based crypto transaction anonymizer Tornado Cash, faced legal action on several continents. Ethereum inventor Vitalik Buterin sympathizes with Pertsev and donated 30 ETH to his legal defense fund.

Tornado Cash’s future darkens in August 2022, when the US Treasury Department’s OFAC sanctioned for allegedly facilitating money laundering and serving sanctioned entities. In August 2023, U.S. federal law enforcement officials accused Tornado Cash allegedly laundered more than $1 billion in illicit funds, including hundreds of millions for North Korean hackers. The charges were filed in the Southern District of New York. Pertsev’s problems are international in scope. In the Netherlands, the developer was find guilty of laundering $1.2 billion, a verdict he has appealed.

To the dismay of cryptocurrency founders everywhere, Pertsev’s failed defense had been cited often in crypto circles: developers don’t control the dapps they release into the wild, so they shouldn’t bear the blame. responsibility.

Cryptocurrency enthusiasts have long argued that developers of open-source financial software should not be held liable for user behavior. Early evidence suggests that the justice system sees things differently. Pertsev’s decision thus sets a chilling precedent for criminal liability for developers of decentralized applications. As Attorney General Merrick Garland put it: declared:

“These charges should serve as another warning to those who believe they can turn to cryptocurrencies to cover up their crimes and hide their identities, including cryptocurrency mixers: no matter how sophisticated your scheme or how many attempts you have make you anonymous, the Department of Justice will find you. »

Uniswap

Along with many other crypto companies, Uniswap, a decentralized crypto exchange, received a Wells notice from the SEC. A Wells Notice is a letter from the SEC informing a company that it may take enforcement action against it. In its April 2024 letter, the SEC accused Uniswap of acting as an unregistered broker-dealer and securities exchange. Uniswap appears poised to aggressively fight the accusations.

“The Uniswap protocol is also in full compliance with US law. SEC action would primarily affect activity that clearly exceeds its authority,” argued Marvin Ammori, Uniswap’s Chief Legal Officer.

MetaMask

Ethereum technology conglomerate Consensys received a well notice from April 2024 from the SEC as well, warning of potential enforcement actions related to its MetaMask Swaps and MetaMask Staking products. The SEC accused MetaMask of being an unlicensed broker.

Fed up with the SEC’s approach to law enforcement regulation toward the crypto industry, Consensys sued the United States Securities and Exchange Commission in Texas over what it did. calls an “illegal seizure of authority”.

American crypto exodus

As the SEC goes after decentralized technology developers, Phoenix Wallet and Wasabi Wallet have both discontinued their services for US customers, citing the SEC’s targeting of the two major self-custodial cryptocurrency wallet providers. Other exoduses will likely follow.

If regulators consider self-custodial wallet providers to be money services businesses, it is unclear whether self-custodial wallet providers – including currently taken-for-granted innovations such as Lightning Network nodes – can operate in the country. The SEC is waging a legal battle against non-custodial services and could push the United States’ partners to adopt draconian policies as well. Unfortunately, there won’t be a resolution for the cryptocurrency industry for years, and one or more of these cases could end up before the Supreme Court.

Big banks and powerful players in the US government don’t want decentralized financial technology to change the way the world is run. So they’re looking to destroy it covertly, without giving the industry a chance to be properly regulated by elected lawmakers. Crypto’s only option? Fight for its life.

Kadan Stadelmann

Kadan Stadelmann is a blockchain developer, operations security expert and Komodo Platform Director of Technology. His experience ranges from working in operations security in the government sector and launching technology startups to application development and cryptography. Kadan started his journey in blockchain technology in 2011 and joined the Komodo team in 2016.

Source