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Cryptocurrency News Articles
Tornado Cash Judge Rejects Defense Discovery and Dismissal Motions, Sending Chilling Message to Crypto Developers
Sep 27, 2024 at 09:51 pm
The judge in the Tornado Cash case delivered an oral ruling today, rejecting both the Defense's motion to compel discovery and their motion to dismiss the charges.
A judge in the Tornado Cash case has denied both the Defense’s motion to compel discovery and their motion to dismiss the charges, dealing a blow to the Defense's strategy.
The Defense's motion to compel discovery sought to access a broad range of government communications, including exchanges with foreign authorities under the Mutual Legal Assistance Treaty (MLAT) and with domestic agencies like the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN).
The Defense argued that these materials were essential to understanding the government's case and could potentially include exculpatory evidence.
However, the judge ruled that the Defense failed to show that the requested information was material to their case, as required by Federal Rule of Criminal Procedure 16.
The court dismissed the Defense’s arguments as speculative, noting that references to what the information "might" or "could" reveal do not meet the necessary standard for materiality.
For example, the Defense argued that MLAT communications with the Dutch government might shed light on the evidence against Tornado Cash or reveal the government’s investigative theories.
The judge found this reasoning unpersuasive, emphasizing that materiality cannot be established through conjecture or vague assertions.
The court similarly rejected the Defense's request for all communications between the government and OFAC and FinCEN.
Although the Defense claimed 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 charges at hand.
The court reiterated that the burden is on the Defense to show a specific link between the requested documents and their defense strategy, a burden they did not meet.
When the Defense suggested an in-camera review—a private examination by the judge of the requested documents—to determine their materiality, the court refused.
The judge argued that granting such a request based on speculative assertions would set a dangerous precedent, effectively forcing in-camera reviews in all criminal cases when a defendant speculates about the relevance of certain documents.
This, the judge stressed, would undermine the purpose of Rule 16 and transform the pretrial discovery process into an unrestrained search for potentially helpful evidence.
The Defense also raised concerns under Brady v. Maryland, arguing that the government might be withholding exculpatory or impeachable evidence.
While the court acknowledged the government's obligations under Brady, it found no indication that these duties had been neglected.
Without concrete evidence suggesting the government was withholding information, the court saw no reason to compel additional disclosures.
The judge cautioned that while the Defense’s arguments were theoretically possible, they lacked the factual support needed to warrant the court’s intervention.
She did say, however, that if she later finds that the government has “interpreted its obligations too narrowly” then there will be “unfortunate consequences for their case.”
The motion to dismiss presented a much more significant set of issues.
Central to the Defense's argument was the definition of a "money transmitter" under the Bank Secrecy Act (BSA).
The Defense contended that Tornado Cash did not qualify as a money transmitter because it did not exercise control over users’ funds; it merely facilitated the movement of cryptocurrencies.
However, the court rejected this narrow interpretation.
The judge clarified that the BSA's scope does not require the control of the funds; Tornado Cash’s role in facilitating, anonymizing, and transferring cryptocurrency was sufficient to bring it within the statute’s ambit.
The judge likened Tornado Cash to custodial mixers, which have been deemed money transmitting businesses.
Further complicating the Defense's argument was their reliance on the 2019 FinCEN guidance, which uses a four-factor test to determine whether a wallet provider is a money transmitter.
The Defense claimed 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 extend to mixers like Tornado Cash.
Consequently, Tornado Cash’s lack of “total independent control” over funds was irrelevant to its classification as a money transmitter.
Another key 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 acknowledged that while code can 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 must focus on the conduct enabled by the code, not merely the code itself.
Even under intermediate scrutiny, which applies to content-neutral restrictions on speech, the judge found that the government’s interests in preventing money laundering and regulating unlicensed money transmission justified
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