The judge in the Tornado Cash Case issued an oral ruling today, rejecting both the defense’s request to compel discovery and the request to dismiss the charges. This represents a huge setback for the defense, and the judge’s reasoning may not bode well for future developers and projects.
Motion to compel
The defense’s motion to compel discovery sought access to a wide range of government communications, including exchanges with foreign authorities under the Mutual Legal Assistance Treaty (MLAT) and with 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 argued that these materials were essential to understanding the government’s case and could potentially contain exculpatory evidence. However, the judge made clear that Article 16 imposes a strict requirement: the defense must demonstrate that the information requested is material to their case, and not merely speculate about its potential usefulness.
The court rejected the defense’s arguments as speculative, noting that references to what the information “might” or “could” reveal do not meet the necessary standard of materiality. For example, the defense argued that MLAT communications with the Dutch government could shed light on the evidence against Tornado Cash or reveal the government’s investigative theories. The judge found this reasoning unconvincing and emphasized that materiality cannot be determined through presumptions or vague statements.
The court also denied the defense’s request for all communications between the government and OFAC and FinCEN. Although the defense argued that these documents were necessary to understand the government’s theories and potential witnesses, the judge concluded that the defense failed to demonstrate how these communications were directly relevant to the present allegations. The court reiterated that the defense’s burden is to demonstrate a specific link between the requested documents and their defense strategy, a burden it failed to meet.
When the defense proposed a closed-door investigation – a personal examination by the judge of the requested documents – to determine their relevance, the court refused. The judge argued that granting such a request based on speculative claims would set a dangerous precedent, forcing closed-door checks in all criminal cases when a suspect speculates on the relevance of certain documents. The judge emphasized that this would undermine the purpose of Rule 16 and turn the pretrial discovery process into an uninhibited search for potentially useful evidence.
Defense has also expressed its concerns Brady vs. Marylandarguing that the government may be withholding exculpatory or impeachable evidence. While the court under-recognized the government’s obligations Bradyshe found no indications that these tasks had been neglected. Without concrete evidence that the government was withholding information, the court saw no reason to compel additional disclosures. The judge warned that while the defense’s arguments were theoretically possible, they lacked the factual support necessary to justify the court’s intervention. However, she did say that if she later discovers that the government “has interpreted its obligations too narrowly,” there will be “unfortunate consequences for their case.”
Motion to dismiss
The motion to dismiss raised a much more important set of issues. Central to the defense’s argument was the definition of a “money transmitter” under the Bank Secrecy Act (BSA). The defense has argued that Tornado Cash did not qualify as a money transmitter because it did not exercise control over users’ funds; it only facilitated the movement of cryptocurrencies. However, the court rejected this narrow interpretation. The judge clarified that the scope of the BSA does not require control over resources; Tornado Cash’s role in facilitating, anonymizing, and transferring cryptocurrency was enough to bring it within the scope of the law. The judge compared Tornado Cash to prison mixers, which are considered money-transmitting companies.
What further complicated the defense’s argument was their reliance on the 2019 FinCEN Guidelineswhich uses a four-factor test to determine whether a wallet provider is a money transmitter. The defense argued that this guidance, which includes a “total independent control” standard, should apply to Tornado Cash. The court disagreed, stating that this standard is specific to wallet providers and does not apply to mixers such as Tornado Cash. Consequently, Tornado Cash’s lack of “total independent control” over the funds was not relevant to its classification as a money transmitter.
Another important point in the court’s analysis was the distinction between expressive and functional code under the First Amendment. The defense argued that prosecuting Storm for his involvement with Tornado Cash was tantamount to punishing him for writing code, which they claimed was protected speech. The judge recognized that while code may be considered expressive, the specific use of code to facilitate illegal activities – such as money laundering or sanctions evasion – falls outside the bounds of First Amendment protection. The judge emphasized that the court should focus on the conduct enabled by the code, and not just on the code itself. Even under interim scrutiny, which applies to content-neutral restrictions on speech, the judge found that the government’s interests in preventing money laundering and regulating illicit monetary transfers justified the restrictions imposed by the relevant laws.
The court also raised concerns about the immutability of Tornado Cash’s smart contracts, an issue raised by both parties. The judge acknowledged that there was a dispute of fact, but noted that this was not a decisive factor in the present application. However, the issue of immutability may come into play at trial in determining the extent of Storm’s control over the agency and his responsibility for its activities.
In his closing remarks, the judge underscored that while the use of code to communicate ideas may be protected under the First Amendment, the use of that code to facilitate illegal activities is not. This distinction is critical in the context of emerging technologies such as blockchain, where the line between speech and behavior can be blurred. The court’s ruling reminds us that the legal system is prepared to hold participants in the digital economy accountable even as it grapples with the complexities of applying traditional legal principles to new and evolving technologies.
The full transcript of the ruling will be released once it is prepared by the court reporter.
This is a guest post by Colin Crossman. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.