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Earlier today, a letter submitted by the legal representatives of Samourai Wallet developers Keonne Rodriguez and William Lonergan Hill uncovered that the Southern District of New York (SDNY) had concealed exculpatory proof in the criminal matter.
As per the document, the prosecution had engaged with FinCEN prior to charging the developers regarding the feasibility of levying unlicensed money transmission allegations against a non-custodial entity.
“A mixer like Samourai that does not possess custody of the cryptocurrency by holding the private keys would strongly imply that Samourai is not functioning as an MSB,” FinCEN informed the prosecutors, as noted in the filing.
In private discussions, prosecutors expressed that they might pursue charges based on the “functional control” of the code, likely referencing Samourai’s authority over the user interface and Samourai Wallet’s coinjoin server. The prosecution acknowledged that such a premise “has never been addressed in the guidance,” conceding that “it could be a challenging assertion to make.”
The correspondence between FinCEN and SDNY was disclosed following a so-called Brady request, mandating the government to provide any evidence that might absolve the developers of the charges.
The government is obligated to deliver exculpatory evidence to the defense no later than two weeks after lodging its indictment. The delayed revelation of such critically relevant documents has potentially misled the court, the letter contends, impacting both the bail stipulations imposed on the developers and the judge’s tendency to refuse the motion to dismiss.
The defense is presently pursuing a hearing to explore possible remedies for SDNY’s actions, including the dismissal of charges.
“It is difficult to envision a clearer instance of ‘regulation by prosecution’ than what we have here,” the defense asserts, alluding to the recent Blache memo. “The pertinent regulator conveyed to the prosecutors that Samourai Wallet was not a money transmitter – under the same public guidance that Mr. Rodriguez and Mr. Hill relied upon to direct their actions – yet the prosecutors proceeded to indict them for operating an unlicensed money services enterprise nonetheless.”
FinCEN’s position on non-custodial service providers communicated to SDNY mirrors its 2019 guidance, which stated that “a cryptocurrency wallet provider is to be categorized as a money transmitter if “the host has total independent control over the value (though it is contractually bound to access the value solely on directives from the owner).”
Advocacy organizations and legal scholars have consistently posited that the prosecution of Samourai Wallet developers, along with the prosecution of Tornado Cash developers Roman Storm and Roman Semenov, represents a blatant infringement of FinCEN guidance.
While Samourai’s Brady request succeeded, a similar request made by Tornado Cash developer Roman Storm attempting to compel the Government to reveal “any materials received from OFAC and FinCEN not already produced, including any substantial communications with those agencies” was denied last year, as the Government contended that FinCEN is not part of the prosecution team on the case.
As Storm highlights on X, he was apprehended the same day Samourai Wallet prosecutors consulted FinCEN regarding the plausibility of unlicensed money transmission allegations, suggesting that SDNY has additionally been cognizant of the stretch of its charges throughout Storm’s prosecution.
“FinCEN explicitly conveyed to SDNY prosecutors that Samourai Wallet’s non-custodial structure did not necessitate money transmitter licensing, yet the DOJ indicted the developers regardless,” Bitcoin Policy Institute’s Head of Policy Zack Shapiro states to Bitcoin Magazine. “This prosecution exemplifies regulation through criminal indictment, directly contradicting Deputy AG Blanche’s directive and undermining the Trump Administration’s crypto policies.”
“Brady violation,” writes anti-money laundering specialist J.W. Verret on X. “The case ought to be dismissed on that basis alone, not to mention the new DOJ memo effectively instructing SDNY to cease the case.”
“The fact that prosecutors attempted to withhold this information from the defense constitutes a severe ethical breach and may ultimately lead to the case being dismissed,” Verret informs Bitcoin Magazine. “That is, if the DOJ doesn’t drop it altogether considering main justice has effectively ordered that such cases be abandoned.”
“As we’ve articulated,” writes CoinCenter’s Peter van Valkenburgh on X, “the DOJ’s unlicensed money transmission prosecutions directly contradict the rule of law. Today we received further confirmation that the prosecution recognized it was defying longstanding regulatory guidance yet pursued charges nonetheless.”
“It follows that if they were not money transmitters under FinCEN’s guidance,” the defense articulates in their letter, “then they could not possibly be prosecuted for lacking a license and for not enacting anti-money laundering measures,” suggesting that the case against Samourai Wallet developers should be dismissed entirely.
This is a guest post by L0la L33tz. The views expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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