Crypto Companies Seek Congressional Guidance to Resolve Uncertainty over Money Transmission Regulations

More than thirty cryptocurrency companies, with the DeFi Education Fund at the helm, are calling on Congress to address the Department of Justice's interpretation of money transmitter laws. These companies argue that this interpretation could lead to criminal charges for non-custodial software developers.

In a letter addressed to influential lawmakers like Senate Banking Committee Chairman Tim Scott and House Judiciary Committee Chairman Jim Jordan, the industry asserts that the DOJ's stance on Section 1960, first revealed in an indictment from August 2023, deviates from existing Treasury Department guidelines.

Companies such as Coinbase, Paradigm, and Kraken, who have signed the letter, argue that the interpretation disregards the Financial Crimes Enforcement Network's 2019 guidelines. These guidelines state that developers who do not take control of user funds are not considered money transmitters.

"The DOJ's new policy position...creates confusion and ambiguity, with the threat of criminal liability looming," the letter states. "Essentially, every blockchain developer could face prosecution as a criminal."

Crypto's 'unlicensed' money transmitter businesses

Section 1960 of the U.S. Code makes it a criminal offense to operate an "unlicensed money transmitting business." However, cryptocurrency companies argue that this should only apply to custodial services that actually hold and transfer user funds, not non-custodial software providers.

Courts have traditionally referred to FinCEN's regulations to determine compliance, but the DOJ's recent legal actions, such as those against Tornado Cash developers, suggest a broader interpretation that could result in more prosecutions.

The letter cautions that unless Congress takes action, U.S. crypto innovation could be hindered, driving developers overseas.

"The federal government should not be engaging in a bait and switch game," the letter reads. "Congress should urge the DOJ to rectify its misapplication of the law, and clarify Section 1960 to more accurately reflect Congress's intent."