In a recent ruling that has sent shockwaves through the crypto industry, US Judge Katherine Polk Failla has declared that software code used in crypto protocols like Tornado Cash does not qualify for First Amendment protection. The decision, delivered in the Southern District of New York on September 26, sets a precedent for treating crypto protocols as money transmitters, even when developers do not directly control 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.
The ruling has significant implications for the crypto industry, particularly for developers of blockchain technology who may now face increased liability under US law. The decision has drawn criticism from industry experts, with concerns raised about the potential impact on software developers across various industries.
### Implications for the Crypto Industry
The court’s decision has broad implications for the ongoing legal battles involving crypto protocols like Tornado Cash and Samourai Wallet. Prosecutors have argued that both protocols are unlicensed money-transmitting businesses that failed to comply with US sanctions laws. Judge Failla’s ruling emphasizes that control over funds is not required to qualify as a money transmitter under the Bank Secrecy Act (BSA).
The ruling also addresses the broader issue of how existing financial laws can be applied to rapidly evolving technologies like cryptocurrency. As regulators and legislators grapple with these challenges, the case of Roman Storm and Tornado Cash will serve as a test case for how developers of blockchain technology are held accountable under US law.
### Industry Criticisms
The decision has sparked criticism from industry leaders, who view it as a troubling precedent for software developers. DeFi Education Fund chief legal officer Amanda Tuminelli expressed disappointment with the ruling, stating that it could expand developer liability in unprecedented ways. She warned that the consequences of this trial could be life-changing for Storm and other software developers.
Variant chief legal officer Jake Chervinsky also condemned the court’s decision, calling it an assault on the freedom of software developers. He described the ruling as a perversion of law and a travesty of justice, highlighting the potential impact on developers across industries.
Despite these concerns, the ruling provides clarity on a contentious legal issue surrounding crypto businesses and their compliance with financial regulations. Appeals are expected, and further legal clarification could come as the case progresses through the legal system.
### The Future of Crypto Regulation
As the crypto industry continues to evolve, regulators and legislators face the challenge of adapting existing laws to new technologies. The case of Tornado Cash and Roman Storm highlights the complexity of regulating decentralized platforms that facilitate financial transactions without direct control over the funds being transmitted.
The outcome of Storm’s trial on December 2 will be closely watched by industry stakeholders, legal experts, and policymakers. The case could set a precedent for how software developers are held accountable for the functions of the code they create, particularly in the context of money transmission and compliance with financial regulations.
In conclusion, Judge Failla’s ruling on the Tornado Cash case has raised important questions about the intersection of software code, free speech, and financial regulations. The decision has sparked debate within the crypto industry and beyond, with concerns about the potential impact on developer liability and freedom of expression. As the case moves forward, further legal clarification is expected, shaping the future of crypto regulation and the responsibilities of software developers in the digital age.
