DOJ Declares Blockchain Developers Won’t Face Prosecution

A high-ranking U.S. Department of Justice (DOJ) official has sparked fresh crypto regulatory chatter after stating that the department will not prosecute blockchain software developers who do not harbor criminal intentions. As expected, this statement has triggered mixed reactions from different corners of the cryptosphere.

DOJ Limits Use of 1960(b)(1)(C) Against Blockchain Developers

Matthew Galeotti, the acting head of the DOJ’s criminal division, made these comments while speaking to pro-crypto groups and industry leaders during an event hosted by American Innovation Project. In the Thursday policy summit held in Jackson Hole, Wyoming, Galeotti explained that the 1960(b)(1)(C) charges will no longer be used against blockchain software builders.

Under the U.S. code 1960(b)(1)(C), unlicensed money transmitting businesses are prohibited from dealing in transactions linked to crime or illicit activities. Violation of the code carries a penalty of up to five years in federal prison.

The department will not use federal criminal statutes to fashion a new regulatory regime over the digital asset industry. The department will not use indictments as a lawmaking tool. The department should not leave innovators guessing as to what could lead to criminal prosecution.

Galeotti

In an interesting twist, a Manhattan court recently found Tornado Cash developer Roman Storm guilty of an illegal money transmitting business, which violates the 1960(b)(1)(C). 

New Policy Clarified Amid Tornado Cash Case

Galeotti clarified that 1960(b)(1)(C) charges will not be sanctioned under the following conditions:

• The blockchain software is truly decentralized (no central operator or controlling party).
• Plus, it only automates peer-to-peer transactions (users interact directly with each other).
• No third party has custody or control over user assets.

However, the DOJ staff noted that “other charges may be appropriate” if malicious intent is spotted in such instances. 

Galeotti mentioned that the new policy will take effect immediately, while addressing Storm’s recent conviction on the same charge. In 2021, the Tornado Cash developer was apprehended and slammed with several charges, including money laundering conspiracy and violation of sanctions.

Primarily, these alleged activities were linked to his role at Tornado Cash, an open-source blockchain tumbler that allows crypto users to carry out private on-chain transactions. 

Upon assuming office earlier this year, the Trump administration continued with Storm’s case. Few cases were dropped against him, aligning with a DOJ memo issued in April instructing federal prosecutors to withdraw most crypto-related charges.

However, the state still pursued allegations surrounding Storm’s knowledge of Tornado Cash users who conducted illegal transactions linked to criminal activities.

Crypto Leaders Praise Policy Shift but Cite Concerns Over Timing and Storm Case

Blockchain lobbyists and industry leaders present at the Wyoming conference commended Galeotti’s comments, although some still held reservations about the timing of the policy revision. Executive director of the DeFi Education Fund, Amanda Tuminelli, expressed delight over the policy change and acknowledged Trump’s role in addressing concerns regarding “Section 1960.”

However, while Coin Center Executive Director Peter Van Valkenburg hailed Galeotti’s statements, he argued that the policy came “a little late,” particularly referring to Storm’s case. Despite Trump’s pro-crypto policies, decentralized finance and privacy maximalists have raised concerns about Storm’s prosecution and conviction by the DOJ.