Paradigm Files Amicus Brief Supporting Roman Storm

Paradigm filed an amicus brief in United States v. Roman Storm, a case that could dictate the future of software development in the United States. In Storm, the U.S. Attorney’s Office in the Southern District of New York has argued that the mere creation of software enabling peer-to-peer cryptocurrency transactions constitutes “money transmitting” under 18 U.S.C. §1960 – contrary to the plain text of the law, clear FinCEN guidance, and decades of case law.

Why It Matters

The irrationality and unfairness of these charges cannot be overstated. The Treasury Department has long recognized that developers who publish software are not money transmitters. In 2014, the Obama Treasury Department explained that “the production and distribution of software, in and of itself, does not constitute acceptance and transmission of value.” In 2019, Treasury further explained that “total independent control” over users’ crypto was a key factor in determining whether an intermediary is a money transmitter under the Bank Secrecy Act. Like any American, Storm should have been able to rely on this clear written guidance by the federal regulator of money transmitters – not be prosecuted in a case of first impression.

The practical consequence of the SDNY’s position is that any developer of neutral code could be held criminally liable for how that code is used or abused. This is as absurd as prosecuting a television manufacturer for the sharing of state secrets on-air, leather wallet craftsmen for wallets holding stolen cash, or Apple for conspiracies formed through iPhone conversations.

Understanding this, in April the Department of Justice issued a policy memo repudiating the very kind of prosecutorial overreach Storm is being subjected to. The memo ended the Biden DOJ’s campaign of “regulation by prosecution.” Crucially, the memo bars prosecutions under Section 1960’s registration prongs (a charge SDNY has now dropped) unless prosecutors can show the defendant knew of the registration violation and willfully violated it. In doing so, the DOJ correctly recognized that pursuing criminal charges against an individual for neutral activity lacking criminal intent based on supposed regulatory violations is deeply problematic when the regulatory requirements are, at best, unclear.

Unfortunately, SDNY has continued to charge Storm under a different Section 1960 provision, using a potential loophole in the DOJ memo to continue to pursue their position that software developers who never take custody or control of funds can be criminally prosecuted as money transmitters. Allowing this charge to persist risks letting unelected prosecutors change the plain meaning of criminal statutes–and threaten everyday citizens with imprisonment even if they are following widely-disseminated and accepted regulatory guidance.

Our Amicus Brief

As Paradigm argues in our brief, given SDNY’s failure to dismiss the 1960 charges fully, the Court must at least appropriately cabin jury instructions to confine its reach to persons who fully understand what it means, as a factual matter, to operate a money transmitting business. In other words, the jury must be required to find beyond a reasonable doubt that Storm knowingly operated a recurring, fee-charging, money-transmitting business, knowingly transmitted funds on behalf of the public, and knowingly handled the specific proceeds alleged to be criminal.

The jury should also be charged that Storm must knowingly have had custody or control of the funds being transmitted or transferred. We believe that the prosecution’s view that one does not need custody or control of funds in order to be a money transmitter is not just contrary to the plain language of the statute and regulatory guidance, but also inconsistent with factual reality. You cannot transfer funds unless you have custody or control of those funds.

Absent that, at a minimum, the jury must be charged that to be found guilty, Storm must have known he was operating a money transmitting business even though that business did not have custody or control of the funds being transferred via the Tornado Cash protocol.

The stakes of this matter are high: an unfair result could chill not just software development and innovation in crypto and fintech, but have ripple effects on the broader open source, AI, and technology communities alike. Between the Southern District of New York and the Court itself, we urge common sense, due process, and fairness.

The full amicus brief is available here.