The presiding judge in the Tornado Cash case announced an oral ruling today, dismissing both the Defense’s request for discovery and their motion to drop the charges. This marks a significant setback for the Defense, and the judge’s rationale may have future implications for developers and projects in the space.
Discovery Motion
The Defense’s request to compel discovery aimed to obtain a wide range of government communications, including correspondences 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). Citing Federal Rule of Criminal Procedure 16, the Defense asserted that these documents were crucial for grasping the government’s case and could potentially contain exculpatory evidence. The judge, however, clarified that Rule 16 sets a high bar: the Defense must prove that the requested information is material to their case, rather than merely conjecturing about its possible significance.
The court dismissed the Defense’s claims as speculative, highlighting that references to what the information “might” reveal do not satisfy the necessary criteria for materiality. For instance, the Defense contended that MLAT communications with the Netherlands might clarify evidence against Tornado Cash or disclose the government’s investigative assumptions. The judge deemed this argument unconvincing, asserting that materiality cannot be established through assumption or vague claims.
Similarly, the court turned down the Defense’s request for all communications between the government and OFAC and FinCEN. Although the Defense asserted that these records were vital for understanding the government’s theories and possible witnesses, the judge concluded that the Defense did not adequately demonstrate how these communications were directly pertinent to the current 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 burden they failed to meet.
When the Defense proposed an in-camera review— a private assessment by the judge of the requested documents— to ascertain their materiality, the court rejected the idea. The judge reasoned that approving such a request based on speculative claims would set a perilous precedent, effectively obligating in-camera reviews in all criminal cases whenever a defendant speculates about the relevance of specific documents. This, the judge stressed, would undermine the intent of Rule 16 and transform the pretrial discovery process into an unfettered quest for potentially advantageous evidence.
The Defense also raised issues under Brady v. Maryland, arguing that the government could be withholding evidence that favors the Defense or could impeach government witnesses. While the court acknowledged the government’s obligations under Brady, it found no evidence suggesting that these duties had been circumvented. In the absence of tangible proof indicating that the government was withholding information, the court saw no reason to mandate further disclosures. The judge did caution that if it later appears that the government has “narrowly interpreted its obligations,” there could be “serious consequences for their case.”
Dismissal Motion
The motion to dismiss raised a far more complex array of issues. Central to the Defense’s position was the definition of a “money transmitter” according to the Bank Secrecy Act (BSA). The Defense argued that Tornado Cash should not be classified as a money transmitter because it did not control users’ funds; it simply facilitated the transmission of cryptocurrencies. However, the court rejected this narrow interpretation. The judge illustrated that the BSA’s provisions do not necessitate control over the funds; Tornado Cash’s role in facilitating, anonymizing, and transferring cryptocurrency was enough to fall under the statute’s coverage. The judge compared Tornado Cash to custodial mixers, which have been categorized as money transmitting businesses.
Further complicating the Defense’s stance was their reliance on the 2019 FinCEN guidance, which outlines a four-factor test for determining whether a wallet provider qualifies as a money transmitter. The Defense claimed this guidance, which includes a “total independent control” criterion, should apply to Tornado Cash. The court disagreed, stating that this standard is specific to wallet providers and does not extend to mixers such as Tornado Cash. Therefore, Tornado Cash’s lack of “total independent control” over funds was irrelevant to its designation as a money transmitter.
Another important aspect of the court’s examination was the distinction between expressive and functional code as protected by the First Amendment. The Defense maintained that prosecuting Storm for his involvement with Tornado Cash constituted punishment for writing code, which they argued is safeguarded speech. The judge recognized that while code can have expressive qualities, using code to facilitate illegal conduct—like money laundering or evading sanctions—falls outside the protections of the First Amendment. The judge stressed that the court must concentrate on the conduct enabled by the code, rather than the code itself. Even under intermediate scrutiny, which pertains to content-neutral speech restrictions, the judge determined that the government’s interests in preventing money laundering and regulating unlicensed money transmission justified the limitations imposed by the applicable statutes.
The court also examined concerns regarding the immutability of Tornado Cash’s smart contracts, an issue highlighted by both parties. The judge acknowledged a factual dispute but indicated that it was not a decisive factor in the present motion. Nevertheless, the issue of immutability may influence the trial regarding Storm’s control over the service and his accountability for its operations.
In her concluding remarks, the judge underscored that while using code to convey ideas may receive First Amendment protection, leveraging that code to facilitate illegal activities is not. This distinction is vital in the context of emerging technologies like blockchain, where the line between speech and conduct can become obscured. The court’s ruling is a reminder that the legal system is prepared to hold participants in the digital economy accountable, even as it seeks to navigate the complexities of applying established legal principles to innovative and evolving technologies.
The complete transcript of the ruling will be available once it is prepared by the court reporter.
This is a guest post by Colin Crossman. Opinions expressed are solely his own and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
