The two co-founders of the privacy-focused Bitcoin wallet Samourai Wallet were sentenced to four and five years in prison on Wednesday. This ruling has become an important precedent as privacy technology in the crypto industry makes a comeback.
Keonne Rodriguez and William Lonergan Hill were sentenced on Wednesday, with the U.S. Department of Justice stating that they were convicted of conspiring to operate an unlicensed money transfer business and assisting in the processing of transactions involving criminal proceeds. Prosecutors argued that although the wallet operates entirely in a non-custodial manner, Samourai's CoinJoin mixing service still helped obscure the flow of illegal funds.
"The sentences imposed on the defendants send a clear message: money laundering proceeds, regardless of the technology used, whether fiat or cryptocurrency, will face serious consequences," said U.S. Attorney Nicolas Roos.
This ruling came after the two were arrested in April 2024, when they denied the charges and were released on a $1 million bail. In late July, the co-founders indicated they would change their plea to guilty before the recent sentencing. The closure of Samourai also led to the emergence of the open-source alternative project Ashigaru in September 2024.
Despite never having actual control over the mixed Bitcoin, Samourai still coordinated the mixing process through its Whirlpool CoinJoin, leading the judge to rule that it constituted a money transmission service. Court documents explicitly stated, "All Whirlpool transactions are coordinated by Samourai servers," which are responsible for broadcasting "Ricochet" transactions to the Bitcoin network.
Prosecutors claimed this was equivalent to transferring funds for clients without obtaining permission from the Financial Crimes Enforcement Network (FinCEN).
Similar to the Tornado Cash case, the charges against the co-founders of Samourai Wallet indicate that merely being non-custodial is not enough to evade legal risks; complete decentralization is the core element.
The Department of Justice noted that the two co-founders "developed the core functionalities of Tornado Cash, paid for key infrastructure costs, promoted the service, and earned millions in profits."
Additionally, while operating the money transfer business, "they failed to implement 'know your customer' or anti-money laundering procedures as required by law." However, this remains a contentious area, with the crypto community generally believing they are engaged in an ongoing struggle with the state over privacy rights.
In October last year, Tornado Cash co-founder Roman Storm questioned decentralized finance developers: "How do you ensure that just because you developed a non-custodial protocol, you won't be prosecuted by the Department of Justice as a 'money services business' like I am?" He argued that as long as no centralized control measures are implemented, even decentralized, non-custodial services could be held accountable for responsibilities that should be associated with custodial products, as he himself is facing charges for this reason.
In January this year, privacy advocates achieved a partial victory when a U.S. court overturned sanctions against Tornado Cash. The appellate opinion stated that the smart contracts used by the protocol do not constitute property and therefore cannot be frozen under the International Emergency Economic Powers Act, while the Office of Foreign Assets Control (OFAC) also "exceeded the authority granted by Congress."
Federal Judge Don Willett, who wrote the opinion, acknowledged the negative real-world impacts of certain uncontrollable technologies falling outside OFAC's sanctioning authority, but stated that this should be resolved by Congress, not the courts:
Similar to the Samourai Wallet case, Storm was convicted solely for conspiring to operate an unlicensed money transfer business. However, last month he requested a federal judge to dismiss the sole charge, arguing that prosecutors could not prove he intentionally assisted criminals in abusing the mixer—lack of subjective intent should lead to an acquittal.
In August last year, Matthew Galeotti, acting assistant attorney general of the U.S. Department of Justice's Criminal Division, stated that the department would "enforce the law fairly." Although he did not directly mention the Tornado Cash or Samourai Wallet cases, he hinted at a new direction for future cases involving unlicensed money transmission businesses:
"Our view is that merely writing code without malicious intent does not constitute a crime," Galeotti said.
Related: Analyst: Cathie Wood's Ark Invest significantly increased holdings in Circle, BitMine, and Bullish amid crypto stock declines
Original article: “Samourai Case Ruling Solidifies DOJ's Money Transmission Theory on Cryptocurrency Mixers”
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