Don’t Believe the Hype: The Real Lessons from the Tornado Cash Samourai Prosecutions

Introduction

Cryptocurrency mixers and decentralized finance (DeFi) services have become central to U.S. criminal enforcement efforts, particularly under 18 U.S.C. § 1960, which targets unlicensed money transmitting businesses (1). Recent cases, such as United States v. Storm, involving the Tornado Cash mixer, and the prosecution of Samourai Wallet’s creators, have tested the boundaries for how financial crime statutes like Section 1960 apply to DeFi (2).

While media coverage has suggested that software development alone could result in criminal liability, the reality is more nuanced. These prosecutions involved allegations that the defendants did more than write code: the government alleged the defendants had ongoing involvement in money transmitting businesses that the defendants knew were being used to launder significant amounts of illicitly derived funds.

The Statutory Framework: 18 U.S.C. § 1960

Enacted in 1992 and expanded by the USA PATRIOT Act in 2001, 18 U.S.C. § 19603 criminalizes operating an unlicensed money transmitting business, carrying up to five years’ imprisonment per violation. The statute provides three prongs for prosecution:

• Prong (A) – State Licensing: Targets businesses operating without a required state license, imposing strict liability even if the defendant is unaware of the requirement.
• Prong (B) – Federal Registration: Applies to businesses failing to register with the Financial Crimes Enforcement Network (FinCEN), also not requiring proof of knowledge.
• Prong (C) – Knowing Facilitation: Focuses on businesses knowingly transmitting funds derived from or intended for criminal activity, requiring actual knowledge of illicit use.

The definition of “money transmitting” is broad, encompassing any method of transferring funds on behalf of the public, but it has historically been understood to be limited to services that involve taking custody or control of funds on behalf of a third party.

Indeed, in 2019 guidance, the FinCEN highlighted custody or control of funds as key factors in determining whether digital asset wallet providers were money transmitters for purposes of the federal Bank Secrecy Act.

Despite this guidance, recent prosecutions have stretched Section 1960’s definition of money transmission to argue that money transmission includes DeFi services that perform the same functions as a traditional money transmission but do not take custody or control of funds in the traditional sense. This approach has sparked debate over prosecutorial overreach.

Samourai Wallet Case

Samourai Wallet, a Bitcoin wallet with privacy features like the “Whirlpool” coin-mixing service and “Ricochet” obfuscation tool, was launched by Keonne Rodriguez and William Hill in 2015. These features allowed users to obscure transaction trails, and between 2017 and 2019, over 80,000 BTC flowed through the service, generating over $6 million in revenue (4).

In April 2024, U.S. authorities charged Rodriguez and Hill with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business under Section 1960 even though the Samourai Wallet was non-custodial.

In August 2025, both pleaded guilty to conspiracy to operate a money transmitting business that transmitted criminal proceeds, admitting that Samourai Wallet was a money transmitting business and that they knew it was moving illicit funds (5). They acknowledged laundering over $200 million, including proceeds from drug trafficking, hacks, and fraud, and actively promoted illicit use.

Although the prosecution originally charged the Samourai Wallet founders with violations of Prong (B) and Prong (C) of Section 1960, Rodriguez and Hill both pleaded guilty to a Section 1960 charge under Prong (C).

Tornado Cash Case

Tornado Cash is an Ethereum-based mixer using smart contracts to break the on-chain link between deposit and withdrawal addresses. In August 2022, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) first sanctioned Tornado Cash (6), alleging it had been used to launder over $7 billion, including $455 million stolen by North Korea’s Lazarus Group (7).

In August 2023, founder Roman Storm, one of the original creators of Tornado Cash, was indicted, in connection with his initial development and ongoing involvement with the mixer, for conspiracy to commit money laundering, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and conspiracy to operate an unlicensed money transmitting business (8). Prosecutors alleged that the founders were aware of illicit use, failed to implement KYC/AML programs, and continued to profit from the service (9).

The Section 1960 charge was initially based on both Prong (B) (failure to register) and Prong (C) (knowing facilitation)(10). But in 2025, following a change in charging policy under the new administration, prosecutors dropped charges under Prong (B) (11) but proceeded trial under a theory that Storm conspired to violate Prong (C) of Section 1960 (12).

The trial resulted in a mixed verdict: Storm was found guilty on the Section 1960 conspiracy charge, but the jury deadlocked on the other counts.

Broader Implications for DeFi

Even though there is prior guidance from FinCEN that some in the DeFi ecosystem have relied on to argue that non-custodial DeFi services fall outside the traditional regulatory perimeter, the Samourai Wallet and Tornado Cash prosecutions reflect a broader thesis that those who operate DeFi services bear an affirmative duty to prevent misuse. If developers offer a service, profit from it, and fail to deter illicit activity, they may be held criminally liable. Claims of decentralization may not protect founders if they retain operational control and knowingly profit from illicit use.

The DOJ emphasized that Tornado Cash was not genuinely decentralized, citing founders’ control over the interface and infrastructure and their decision not to implement compliance measures. The message to DeFi entrepreneurs is clear: to avoid being treated as operators of money transmitting businesses under Section 1960, developers must relinquish meaningful control and avoid facilitating services that resemble financial intermediaries. Publishing code is not a crime, but ongoing management and profit from a platform may trigger liability.

Regulatory Ambiguity and Congressional Action

The contrast between FinCEN’s guidance and DOJ’s actions highlights regulatory ambiguity. FinCEN’s guidance (13) has historically excluded non-custodial actors from federal money transmission regulation, giving developers some comfort that non-custodial DeFi services may avoid federal money transmission requirements. However, recent prosecutions show DOJ’s willingness to conceptualize money transmission more broadly under Section 1960 and pursue criminal charges against the operators of DeFi services if the facts warrant it (14).

Congress has responded with proposed legislation that, to varying degrees, seeks to codify protections that developers and service providers who do not custody consumer funds are not money transmitters, but it remains to be seen whether, if enacted, those protections would in fact preclude prosecutors from advancing Section 1960 charges against the operators of DeFi services in the future (15).

Conclusion

The focus of recent prosecutions under 18 U.S.C. § 1960 has shifted from technical compliance failures to knowing facilitation of illicit finance. Rodriguez, Hill, and Storm were prosecuted not for failing to obtain licenses or register, but for actively operating services designed to obscure criminal proceeds and profiting from those activities. The operative force of Section 1960 lies in Prong (C), targeting those who knowingly allow their services to be misused for unlawful purposes (16).

These cases highlight the risks for DeFi service providers who maintain operational control and profit from their platforms. Legislative efforts may eventually provide clearer guidance, but until then, developers must be vigilant in ensuring their services are not knowingly used for illicit purposes.

References
(1) mayerbrown.com/en/insights/publications/2025/08/the-tornado-cash-trials-mixed-verdict-implications-for-developer-liability
(2) coincenter.org/when-prosecutors-ignore-the-regulators
(3) law.cornell.edu/uscode/text/18/1960
(4) justice.gov/usao-sdny/pr/founders-samourai-wallet-cryptocurrency-mixing-service-plead-guilty
(5) justice.gov/usao-sdny/pr/founders-samourai-wallet-cryptocurrency-mixing-service-plead-guilty
(6) jdsupra.com/legalnews/ofac-takes-action-against-virtual-8514005
(7) home.treasury.gov/news/press-releases/jy0916
(8) fbi.gov/news/stories/tornado-cash-co-founders-accused-of-helping-cybercriminals-launder-stolen-crypto
(9) justice.gov/usao-sdny/pr/founder-tornado-cash-crypto-mixing-service-convicted-knowingly-transmitting-criminal
(10) home.treasury.gov/news/press-releases/jy1702
(11) justice.gov/dag/media/1395781/dl
(12) gibsondunn.com/wp-content/uploads/2025/07/Raymond-Akbari-DOJ-Crypto-Enforcement-Is-Shifting-To-Target-Willfulness-Law360-7-21-25.pdf
(13) fincen.gov/system/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf
(14) coincenter.org/when-prosecutors-ignore-the-regulators
(15) emmer.house.gov/media-center/press-releases/emmer-s-securities-clarity-act-and-blockchain-regulatory-certainty-act-pass-house-financial-services-committee-markup
(16) reuters.com/legal/government/us-jury-deadlocks-tornado-cash-founders-money-laundering-charge-2025-08-06

About the Authors
Article authored by Joseph Cutler, Partner, Lowell Ness, Partner, and Steven Merriman, Partner, Perkins Coie, LLP