On February 26, 2026, Representatives Scott Fitzgerald (R-WI), Ben Cline (R-VA), and Zoe Lofgren (D-CA) introduced the bipartisan Promoting Innovation in Blockchain Development Act of 2026 to protect software developers—who write code but do not control other people’s money—from inappropriate misclassification under criminal code Section 1960. The Promoting Innovation in Blockchain Development Act clarifies that Section 1960 applies only to those that control customer assets and transmit funds on behalf of customers, aligning the statute with congressional intent and the Treasury Department’s long-standing regulatory interpretation.

By clarifying the scope of who Section 1960 does and does not apply to, this bipartisan bill strengthens U.S. competitiveness in next generation digital infrastructure while reinforcing national security. Like the early internet in the 1990s, blockchain technology is a novel innovation evolving faster than existing regulation. Engineers developing open, disintermediated systems do not neatly fit into financial regulations designed for a system that assumes the existence of intermediaries. Long called for by the digital asset industry, leaders of major software development companies, and members of Congress, the introduction of this legislation represents a landmark victory for developers of blockchain technology and a critical step forward in protecting American software innovation. 

Why American Developers Need Clarity Under Section 1960

Background on Section 1960

As DEF explained in our 2025 end-of-year blog, the most significant obstacle facing the American digital assets industry and software developers generally is the misapplication of 18 U.S.C. § 1960 – the criminal law proscribing operating an “unlicensed money transmitting business.” 

Section 1960 was originally enacted by Congress as the enforcement mechanism for licensing requirements for money transmitting businesses under the Bank Secrecy Act (BSA). Designed for traditional money services businesses (MSBs) under the BSA, federal and state-by-state money transmission licensing requirements have been misapplied to software developers who build noncustodial, peer-to-peer blockchain technology or software tools, although neither the developers nor the software itself transmit, custody, or control other people’s funds. This “regulation-by-prosecution” approach chills open‑source innovation and has pushed many U.S. developers offshore. 

In order for Section 1960 to apply, a person must be engaged in “money transmitting,” as defined in Section 1960(b)(2), which “includes transferring funds on behalf of the public.” Both the plain meaning of this language and relevant case law make clear that a party can only “transfer funds on behalf” of another by obtaining control over those funds and transmitting them by relinquishing that control. 

Direct Implications for Software Developers

In direct contradiction to the statute, prosecutors in the Southern District of New York (SDNY) under the Biden Administration investigated and prosecuted software developers who created noncustodial, blockchain-based software for operating “unlicensed money transmitting business[es]” in violation of Section 1960, even though those developers do not have custody or control over other people’s funds. In fact, one SDNY judge allowed an indictment to stand based on this flawed DOJ argument, holding that “the control requirement is not in the statute” and therefore the government need not allege a developer has control over funds.

This prosecutorial interpretation is dangerously expansive and limitless. If “money transmitting” is construed to apply to persons who neither custody nor control user assets, nor act as intermediaries, then anyone who creates software later used by third parties to execute digital transactions fall within its scope. Under such a novel and overbroad misapplication of the statute, developers of all forms of digital infrastructure, not just financial intermediaries, face the risk of a federal criminal prosecution. 

The limitless position pushed in these flawed prosecutions directly conflicts with 2019 guidance from the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the main BSA regulator, which software developers have relied upon to understand whether they fall into the MSB category. FinCEN concluded in the guidance that only those who exercise “total independent control” over a customer’s assets are engaging in money transmitting and can be classified as a money transmitter. FinCEN is clear in its interpretation: only those who act as intermediaries by exercising control over user assets are money transmitters subject to the BSA.  

Measurably Negative Impacts on American Innovation

The present state of law and regulation means that software developers are told by their federal regulator (FinCEN) that they are not required to obtain a license, yet are subsequently prosecuted by line prosecutors for failure to obtain one. Such contradictory enforcement undermines fundamental principles of American due process and fair notice, and sends developers off shore. The impact is evident: the U.S. share of open‑source developers fell from 25% in 2021 to 18% in 2025, driven by a lack of clear, durable rules for software development. 

Financial infrastructure is moving to 24/7/365, globally accessible decentralized blockchain rails. Pushing developers offshore who create that infrastructure cedes U.S. influence over design and standards, weakens oversight, and hampers illicit‑finance detection. If innovation migrates overseas, adversaries gain leverage in shaping core protocols. 

Positive Momentum to Address Section 1960 Misapplication

In April of 2025, the Deputy Attorney General Todd Blance issued a memorandum entitled “Ending Regulation-by-Prosecution” to help address the misapplication of Section 1960. Importantly, in the memo, DAG Blanche makes it clear that the DOJ will not enforce pure regulatory violations under Section 1960. This concept was further expanded upon in a speech by then-acting Assistant Attorney General Matthew Galeotti, in which he stated that the DOJ would not approve new Section 1960 charges “where the evidence shows that software is truly decentralized and solely automates peer-to-peer transactions, and where a third party does not have custody and control over user assets.” 

From Congressional Leaders

• “For too long, federal overreach has blurred the line between bad actors and the innovators building next-generation technology. The Promoting Innovation in Blockchain Development Act restores needed clarity by protecting developers who don’t control customer funds, while ensuring law enforcement can continue to target real criminals. I’m proud to support this effort to keep America the global leader in blockchain innovation.” – Rep. Ben Cline (VA-06)

• “For years, innovators and software developers have been caught in the crosshairs of an aggressive regulatory approach that treats them like criminals. The Promoting Innovation in Blockchain Development Act draws a clear line between those who develop and deploy blockchain software and those who actually move or manage funds. It provides long-overdue legal clarity, protects innovation here at home, and allows law enforcement to focus on genuine criminal activity rather than chilling American technological leadership.” – Rep. Scott Fitzgerald (WI-05)

• “Blockchain technology has been quickly evolving, and regulations set by Congress have simply not kept up. Right now, we’re seeing misapplication of existing law harm innovation and push developers offshore. This bipartisan legislation provides clarity and protects software developers who don’t control customer funds from being wrongly exposed to criminal liability.” — Rep. Zoe Lofgren (CA-18)

Proactively Addressing Potential Misconceptions 

Clarifying Section 1960 does not deprive the DOJ or prosecutors of meaningful enforcement tools to combat illicit activity such as money laundering. Federal law already provides robust mechanisms to address criminal conduct through the money laundering statutes, including 18 U.S.C. §§ 1956 and 1957.  Prosecutors successfully utilize these statutes broadly and extensively to combat a myriad of illicit activity.  In fact, Section 1960 is frequently used inappropriately by prosecutors to secure venue when charging rather than to address substantive activities. 

Nor does the Protecting American Software Developers Act weaken Section 1960 itself; instead, it aligns the criminal code with the BSA’s definition of “money transmitting,” and with guidance by the primary regulator of MSBs – FinCEN. 

More Resources on Section 1960 and the BSA: 

• “Through the Looking Glass: Conceptualizing Control and Analyzing Criminal Liability For Unlicensed Money Transmitting Businesses Under Section 1960” by Daniel Barabander, Amanda Tuminelli, Jake Chervinsky – link

• Letter to David Sacks re: Department of Justice’s “extraordinary, lawless reinterpretation of federal money transmission licensing statutes to criminalize innovation in software development” from CEOs and Founders of Paradigm, a16z Crypto, Multicoin Capital, Coinbase, Gemini, Kraken, BTC Inc., BitGo, and Exodus, April 7, 2025  – link

• Letter from Senators Lummis and Wyden to Merrick Garland regarding the U.S. DOJ “recent policy arguments that dramatically expand the scope of the Federal prohibition on operating an unlicensed money transmitting business,” May 9, 2024 – link

• Letter to Members of the Senate Committee on Banking, Senate Committee on the Judiciary, House Committee on Financial Services, and House Committee on the Judiciary from 30+ crypto industry groups regarding DOJ’s “overly expansive interpretation of the criminal code provision proscribing operating an “unlicensed money transmitting business” as applied to software developers,” March 26, 2025 – link

• “Why the Department of Justice’s actions against DeFi are a wreck,” by Miller Whitehouse-Levine and Amanda Tuminelli – link

• “Square Peg in a Round Hole: Why the Bank Secrecy Act Should Not Apply to Blockchain Participants,” by Lizandro Pieper and Gavin Zavatone – link

• Financial Crimes Enforcement Network (FinCEN) 2019 Guidance on Convertible Virtual Currencies – link

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