Crypto Industry Challenges DOJ’s Expansive Money Transmitter Rules

The DeFi Education Fund (DEF) and major crypto companies are challenging the U.S. Department of Justice (DOJ) over what they call an “unprecedented and overly expansive” interpretation of criminal law, which has been used to classify crypto firms as unlawful money transmitters.

In a letter signed today and addressed to key leaders of the House and Senate Committees on Banking and Judiciary, as well as the House Financial Services Committee, the DEF argued that the DOJ’s stance, introduced in 2023, “threatens the viability of U.S.-based software development in the digital asset industry and other industries.”

The letter was signed by 34 industry leaders, including Coinbase, Kraken, and Crypto.com, along with venture capital firms Andreessen Horowitz, Paradigm, and Dragonfly. Other signatories include Uniswap Labs, Polygon Labs, and Consensys.

Loading tweet...

“The DeFi Education Fund’s number one policy priority is obtaining Congressional clarity on Section 1960,” DEF Executive Director and Chief Legal Officer Amanda Tuminelli told Decrypt, calling the DOJ’s actions an attempt to impose “regulation by criminal indictment.”

Tornado Cash Case Raises Concerns

One of the most prominent cases tied to the DOJ’s interpretation of “money transmitter” laws is the prosecution of Tornado Cash co-founder Roman Storm, who was arrested on money laundering charges. The DOJ has argued that Tornado Cash’s use by state-sponsored hackers makes it a legal threat. Meanwhile, crypto advocates, including the DEF, argue that Storm’s work as a developer is protected under freedom of speech.

Judge Katherine Polk Failla, however, ruled that the case should proceed, stating: “These laws do not target protected expressive conduct. They punish money laundering, [...] the operation of an unlicensed money transmitting business, and [...] sanctions evasion.”

The Fight Over Section 1960

In its letter, the DEF highlighted that Section 1960 is one of two legal statutes defining “money transmitting business” in the U.S. The law serves as the enforcement mechanism for criminalizing unlicensed money transmission. However, DEF pointed out that Section 5330, which defines who must obtain a license, has a “substantively identical” definition to Section 1960.

Despite this, the DOJ has taken the position that the Bank Secrecy Act’s definition of a money transmitter under Section 5330 does not apply when determining whether a company is in violation of Section 1960. DEF strongly opposed this stance, stating: “In no case has a criminal court’s analysis of Section 1960 supported or endorsed the DOJ’s novel interpretation.”

According to DEF, the DOJ’s broad interpretation creates serious legal risks for software developers of non-custodial technology in the U.S. If left unchecked, the group warns, this could stifle innovation and drive crypto development offshore.

Crypto Industry Pushes for Regulatory Clarity

Under President Donald Trump’s administration, crypto’s relationship with regulators has seen notable progress, with the SEC closing multiple investigations and lawsuits and advancements in stablecoin regulations. However, the DEF argues that achieving clarity on Section 1960 remains a key priority.

“We are seeing incredible progress, and as an industry are working towards a goal of ‘durable wins’—ultimately, our priority is to ensure that software developers (for DeFi, crypto, AI, etc.) are protected for the long-term,” a DEF spokesperson told Decrypt.

Earlier this year, non-custodial software developer Pharos sued the DOJ over its interpretation of Section 1960, alleging that the agency is attempting to criminalize crypto development through an excessively broad reading of the law.