Judge’s decision on discovery motions

The Defense’s motion to dismiss centered on a crucial legal interpretation: whether Tornado Cash qualifies as a “money transmitter” under the Bank Secrecy Act (BSA). The Defense contended that Tornado Cash did not fulfill the requirements to be classified as a money transmitter since it did not exert control over users’ funds. They claimed that Tornado Cash simply facilitated the transfer of cryptocurrencies, acting as a neutral intermediary. Nevertheless, the court rejected this assertion, adopting a broader interpretation of the BSA’s reach.

Ultimately, the court’s ruling highlights the difficulties of applying conventional legal frameworks to innovative technologies like blockchain. While the Defense sought to distinguish between code as speech and code as conduct, the court clarified that the law is prepared to hold developers responsible when their creations enable illegal activities. This case serves as a reminder that even in the decentralized ecosystem of blockchain, legal obligations are still applicable, and developers must consider the potential ramifications of their work.

The judge clarified that the BSA does not necessitate a money transmitter to have direct authority over the transferred funds. Instead, the emphasis is on the entity’s role in facilitating the movement of money, especially when such movement involves making transactions anonymous or obscured. Tornado Cash’s operation as a mixer—intended to anonymize and transfer cryptocurrency—was adequate to place it within the statute’s purview. The court compared Tornado Cash to custodial mixers, which have previously been categorized as money transmitting businesses under U.S. law.

Source: bitcoinmagazine.com

To bolster their argument, the Defense referenced the 2019 FinCEN guidance, which outlines a four-factor test to determine whether a wallet provider qualifies as a money transmitter. A key factor in this test is whether the provider has “total independent control” over the funds. The Defense contended that Tornado Cash did not meet this benchmark, as it did not maintain control over users’ funds once they were deposited into the smart contract. However, the court dismissed this argument, observing that the FinCEN guidance pertains specifically to wallet providers, not to mixers such as Tornado Cash. The judge asserted that Tornado Cash’s absence of “total independent control” was irrelevant to its classification as a money transmitter under the BSA.

When the Defense suggested an in-camera review—a confidential assessment by the judge of the requested documents—the court declined. The judge argued that approving such a request based on speculative claims would create a perilous precedent, effectively necessitating in-camera reviews in all criminal cases where a defendant conjectures about the relevance of specific documents. This, the judge highlighted, would compromise the aim of Rule 16 and transform the pretrial discovery process into an unrestricted search for potentially useful evidence.

The Defense additionally expressed concerns under Brady v. Maryland, contending that the government might be withholding exculpatory or impeachable evidence. While the court acknowledged the government’s duties under Brady, it found no indications of any failures in these responsibilities. Absent concrete evidence suggesting that the government was concealing information, the court saw no grounds for mandating additional disclosures. Nevertheless, the judge cautioned that if it is subsequently determined that the government has “interpreted its obligations too narrowly,” there would be “unfortunate consequences for their case.”

The Defense’s motion to compel discovery sought access to a wide range of government communications, including those with foreign entities under the Mutual Legal Assistance Treaty (MLAT) and domestic agencies such as the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). The Defense maintained that these documents were crucial for comprehending the government’s case and might contain exculpatory evidence. However, the judge determined that according to Federal Rule of Criminal Procedure 16, the Defense must prove that the requested information is relevant to their case, rather than simply hypothesizing about its possible utility.

Moreover, the court denied the Defense’s request for all communications between the government and OFAC as well as FinCEN. Although the Defense asserted that these documents were vital for grasping the government’s theories and potential witnesses, the judge concluded that the Defense had not demonstrated how these communications were directly pertinent to the charges. The court reiterated that it is the Defense’s responsibility to establish a clear connection between the requested documents and their defense strategy, a requirement they failed to fulfill.

Another important aspect of the court’s ruling was its consideration of the First Amendment argument put forth by the Defense. The Defense argued that the prosecution of Tornado Cash’s developers for their role in the project amounted to punishing them for writing code, which they claimed is protected speech under the First Amendment. The judge recognized that code can indeed be seen as expressive, but differentiated between code as speech and code as conduct. Specifically, the court determined that while writing code may be protected, using that code to facilitate unlawful activities—such as money laundering or evasion of sanctions—exceeds the limits of First Amendment protection.

The court rejected the Defense’s claims as speculative, highlighting that mentions of what the information “could” or “might” reveal do not satisfy the necessary standard for relevance. For example, the Defense argued that communications under MLAT with the Dutch government could shed light on the evidence against Tornado Cash or disclose the government’s investigative methods. The judge found this reasoning unpersuasive, emphasizing that relevance cannot be substantiated through speculation or ambiguous claims.

A more technical issue raised during the proceedings was the matter of Tornado Cash’s smart contracts and their immutability. Both the Defense and the prosecution recognized that the smart contracts were designed to be immutable, indicating they could not be modified once deployed on the blockchain. The Defense argued that this immutability constrained the developers’ control over the platform, and consequently, they should not be held liable for any illegal activities executed through Tornado Cash. The judge acknowledged this as a factual disagreement but pointed out that it was not a decisive element in the current motion. Nonetheless, the question of immutability may play a crucial role at trial, particularly concerning the extent of the developers’ control over the platform and their accountability for its operations.
The judge employed intermediate scrutiny, a legal standard used for assessing content-neutral restrictions on speech, to evaluate the government’s actions. According to this standard, the court must ascertain whether the government’s interest in regulating the conduct outweighs the potential encroachment on free speech. In this particular case, the judge ruled that the government’s interest in combating money laundering and regulating unlicensed money transmission justified the restrictions imposed by the BSA. The court concluded that the prosecution of Tornado Cash’s developers was not an unconstitutional limitation on free speech, as the government was targeting the conduct facilitated by the code, not the code itself.