.png)
DEF Submits Amicus Brief in Tornado Cash Case
What happened?
In August of last year, the U.S. Department of Justice (DOJ) indicted Roman Storm and Roman Semenov, the developers of the Ethereum-based smart contract protocol Tornado Cash. The DOJ alleged three wide-ranging conspiracies in the Indictment, including money laundering, operating an unlicensed money transmitting business, and violations of the International Emergency Economic Powers Act (IEEPA). On Friday of last week, DEF submitted its amicus brief in support of Storm’s Motion to Dismiss the Indictment.
DEF’s position is simple: the novel theories in the Indictment are unprecedented and not supported by allegations that reflect the reality of the technology. For example, the IEEPA claim hinges on expanding precedent far beyond previous sanctions cases. Based on our extensive research, previous cases of IEEPA conspiracy included allegations that individuals purposely and knowingly transmitting money or goods to a sanctioned entity - meaning the accused directly and actively engaged with a sanctioned entity. In none of the previous cases did the government allege that the defendant was responsible for violating IEEPA because they created some tool or technology and later became aware that it was used by a sanctioned entity.
At its core, the Indictment reflects the government’s attempt to hold developers criminally responsible for publishing an immutable smart control protocol that was later used by a third party bad actor. The judge in the Tornado Cash case previously rejected such a theory in Risley v. Uniswap, a civil case involving a similar theory of developer liability.
What does this mean?
The DOJ’s case is, unfortunately, unsurprising given the U.S. government’s stance toward digital assets in recent years. Criminal charges bring a new level of seriousness to problems facing the industry: if convicted, Storm and the others could potentially be incarcerated for up to 20 years. Furthermore, an opinion endorsing the government’s novel theory would set a dangerous precedent that software developers are liable for the actions of third-parties that use their software. This is bigger than just DeFi protocol developers and the cryptocurrency space.
We worked together with our colleagues at the Blockchain Association and Coin Center to ensure that the industry addressed all allegations in the Indictment. We encourage you to read their amicus briefs as well.
For more information read Amanda’s X thread on the topic!
Uniswap Receives Wells Notice from the SEC
What happened?
Last Wednesday, Uniswap Labs received a Wells notice from the Securities and Exchange Commission (SEC), notifying them that the Enforcement Division intends to recommend that the Commission file an enforcement action against them. We don’t know what exactly the Commission is claiming Uniswap Labs did to violate the securities laws, what products are involved, or whether Uniswap Labs will make their response public. However, Uniswap Labs will have a chance to respond to the Wells notice before the Commission makes a decision about filing an action.
See this blog post by Uniswap Labs and threads by Hayden Adams, the creator of the Uniswap protocol, and Marvin Ammori, the CLO of Uniswap Labs, for additional context.
What does this mean?
A Wells notice is not a guarantee of an enforcement action, but is instead a notification that the SEC’s Enforcement Division is recommending the Commission file charges. While it is unlikely that the SEC Enforcement staff will change their minds, Uniswap Labs will have a chance to respond and explain to the Commission why none of their products violate the securities laws. The DeFi industry will have to wait to see what’s in the complaint if one is filed, but it is important to remember that at least one judge previously described the various decentralized components of the Uniswap ecosystem in Risley v. Uniswap and held that Uniswap Labs and Hayden Adams were not responsible for the conduct of third party token creators. That same judge also decided that Coinbase did not operate as a broker through its self-custody Wallet App, correctly explaining that the App is mere software that allows users to direct their own transactions on DEXes. A nuanced understanding of DeFi technology will also be necessary if a complaint is filed against Uniswap Labs.
Deputy Secretary Adeyemo Testifies Before Congress
What happened?
Last Tuesday, Adewale Adeyemo, Deputy Secretary of the Department of Treasury, testified before the Senate Committee on Banking, Housing, and Urban Affairs concerning the Treasury’s efforts to counter illicit finance, terrorism, and sanctions evasion. Deputy Secretary Adeyemo’s emphasis was on the use of cryptocurrency by Hamas, Russia, and North Korea.
Deputy Secretary Adeyemo began the hearing by requesting “additional tools and authorities… to mitigate the risks” in the cryptocurrency ecosystem. Because of the Treasury’s “long track record” of “making it harder for these groups to use the traditional financial system to move money,” they were exploring other means of moving their money. However, Deputy Secretary Adeyemo also testified that the Treasury Department “continue[s] to assess that terrorists prefer to use traditional financial products and services” over cryptocurrency.
In his remarks, Ranking Member Tim Scott (R-SC) expressed concern about the Treasury’s heavy focus on cryptocurrency when it has been apparent that illicit actors and adversaries have been evading sanctions through traditional means. He stated, “It feels like digital assets has become the scapegoat of this administration because, with all that’s going on in the world, the only legislative request you have sent to this committee are new authorities related to cryptocurrency…” Specifically, in reference to Iran evading sanctions, he said “none of that’s happening in digital assets. They’re literally using our cash, we’re making it easier for them to use Euros. The bottom line is this: that if $35 billion represents the export of oil from Iran, none of which is purchased using digital assets, having a conversation simply and exclusively about digital assets misses the elephant in the room.”
What does this mean?
The hearing was the result of a request the Deputy Secretary made in November 2023 in his letter and legislative proposals to Congress — proposals that aim to grant the Treasury the statutory authority to deploy sanctions in the FinTech and cryptocurrency space. However, these proposals would place an unwarranted de facto ban on cryptocurrency in the United States given that it’s not the primary method of illicit finance and sanctions evasion. As explained in our recent blog post, terrorist groups like Hamas continue to prefer traditional financial services and products. So while Deputy Secretary Adeyemo portrayed cryptocurrency as the main vehicle for illicit finance, traditional finance remains the primary method.
