US Judge Rules Crypto Protocol Code Not Protected by First Amendment
A recent ruling by Judge Katherine Polk Failla in the Southern District of New York has sent shockwaves through the crypto industry. The decision, delivered on Sept. 26, states that software code used in crypto protocols like Tornado Cash does not qualify for First Amendment protection. This ruling also sets a precedent for treating crypto protocols as money transmitters, even when developers do not have control over the funds being transmitted.
The case revolves around Roman Storm, the developer of Tornado Cash, who is facing charges of money laundering, operating an unlicensed money-transmitting business, and evading US sanctions. Storm argued that his role in developing and deploying the Tornado Cash protocol should be protected under free speech laws. However, Judge Failla rejected this argument, stating that while code can be expressive, using it to execute functions like money transmission does not fall under free speech protections.
Implications for the Crypto Industry
The ruling has significant implications for the crypto industry, particularly for developers of blockchain technology. Prosecutors have argued that businesses like Tornado Cash and Samourai Wallet are unlicensed money-transmitting businesses that have not complied with US sanctions laws. Judge Failla emphasized that control over funds is not required to qualify as a money transmitter under the BSA, further supporting the prosecution’s case.
The decision has sparked criticism from industry experts, with concerns raised about the potential expansion of developer liability. DeFi Education Fund chief legal officer Amanda Tuminelli expressed disappointment with the ruling, while Variant chief legal officer Jake Chervinsky called it a troubling precedent for software developers.
Legal Clarity Amidst Controversy
Despite the backlash, the ruling provides clarity on a contentious legal issue surrounding crypto businesses and BSA requirements. As regulators and legislators continue to grapple with how to apply existing financial laws to rapidly evolving technologies, this case serves as a key point of reference. Appeals are expected, and further legal clarification could come as the case progresses.