Samourai Wallet Co-Founders Accuse US Authorities of Concealing Legal Advice

Samourai Wallet’s co-founders, Keonne Rodriguez and William Hill, have leveled serious accusations against US federal prosecutors, alleging the concealment of a crucial legal opinion for over a year. This opinion from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) reportedly stated that Samourai Wallet, a non-custodial cryptocurrency service, did not require a money transmission license, directly contradicting the charges brought against the executives.

• Samourai Wallet co-founders charged with unlicensed money transmission and laundering over $100 million.
• Alleged withholding of FinCEN opinion that Samourai did not need a license.
• Defense claims non-disclosure prejudiced their clients’ ability to seek bail and prepare defense.
• Request for a hearing to investigate potential “Brady violation.”

The charges against Rodriguez and Hill, filed in April 2024, accuse them of laundering over $100 million in illicit funds through Samourai Wallet, which facilitated over $2 billion in transactions. Samourai Wallet, known for its non-custodial nature and use of CoinJoin for transaction anonymity, has been at the center of a heated debate over the regulation of cryptocurrency services. Non-custodial wallets, unlike traditional financial services, allow users to retain complete control over their funds without any third-party custody.

The core of the controversy lies in a FinCEN legal opinion from August 2023, which reportedly stated that Samourai Wallet did not require a money transmission license due to its non-custodial design. This opinion, according to the defense, was not disclosed to them until recently, leading to what they describe as a “Brady violation”—a term referring to the failure by prosecutors to disclose evidence favorable to the defense, as required by the US Constitution.

The defense argues that this non-disclosure severely impacted their case, preventing them from seeking bail, adequately preparing their defense, and pursuing an early dismissal. In a recent court filing, they stated,

“The non-disclosure prejudiced our clients’ ability to seek bail, prepare their defense, and pursue early dismissal of the case.”

This case also underscores the broader issue of “regulation by prosecution” in the cryptocurrency sector. Despite a recent memo from Deputy Attorney General Todd Blanche aimed at ending this practice, the charges against Samourai Wallet suggest a disconnect between policy and action. The defense’s letter highlighted this discrepancy, stating,

“It is hard to imagine a clearer example of ‘regulation by prosecution.’”

Samourai Wallet’s CEO, Keonne Rodriguez, had previously defended their use of CoinJoin, emphasizing that Samourai’s model did not qualify it as a regulated money transmitter. He explained,

“Users are entirely entitled to use this type of tool. It’s just a collaborative transaction. It gets iffy if you’re providing CoinJoin services, and you’re taking custody, then you’re a money transmitter and you better have a money transmission license.”

This position aligns with the FinCEN opinion that was allegedly withheld.

CoinJoin, for those unfamiliar, is a technique used to enhance transaction privacy by combining multiple Bitcoin transactions into one, making it harder to trace funds. Rodriguez’s stance highlights the nuanced regulatory landscape surrounding privacy tools in the crypto space.

The case has sparked significant discussion within the crypto community, raising concerns about the legality and regulation of privacy tools. It also underscores the challenges of applying traditional financial regulations to decentralized technologies, especially in light of recent DOJ policy changes aimed at protecting and promoting the use of open public blockchain networks.

The outcome of this case could set a precedent for how non-custodial wallet providers are treated under US law. If the defense successfully proves a “Brady violation,” it could lead to the dismissal of charges or a retrial, influencing future regulatory approaches to non-custodial wallets and privacy-enhancing technologies.

Of course, the prosecution might argue that the withheld advice did not significantly impact the case, but the question remains: how can we trust a system that plays hide and seek with crucial legal opinions? In the crypto world, where privacy is prized more than a rare NFT, such actions feel like a low blow.

Here are some key takeaways and questions related to the situation:

• What are the charges against Samourai Wallet’s co-founders?

  They are charged with operating an unlicensed money transmission business and laundering over $100 million in illicit funds.

• What is the alleged withheld evidence in the Samourai Wallet case?

  A legal opinion from FinCEN that stated Samourai Wallet did not need a money transmission license.

• What is a “Brady violation”?

  A “Brady violation” occurs when prosecutors fail to disclose evidence favorable to the defense, as required by the US Constitution.

• How does the DOJ’s recent policy change relate to the Samourai Wallet case?

  The DOJ policy change aims to end “regulation by prosecution,” which contradicts the approach used in charging Samourai Wallet.

• What is the significance of CoinJoin in the context of Samourai Wallet’s operations?

  CoinJoin is a technique used by Samourai Wallet to anonymize transactions, which Rodriguez argued does not require a money transmission license unless custody of funds is involved.

In the wild west of crypto, the Samourai Wallet case stands as a testament to the ongoing battle for clarity and fairness. As the crypto community watches closely, the outcome of this legal drama could have far-reaching implications for the future of privacy and decentralization in the digital age.