On Wednesday, the founders of Bitcoin privacy wallet Samurai Wallet were arrested and charged on behalf of the U.S. government. This indictment could set a dangerous precedent beyond Bitcoin’s privacy services.
“If your government is concerned about the people managing their money, the most important question you have to ask is, ‘What on earth is wrong with my government?’ Thing.”
– Andreas Antonopoulos
Last Wednesday, Samurai Wallet founders Keonne Rodriguez and William Hill were arrested and charged in the Southern District of New York with money laundering and conspiracy to operate an unauthorized money services business.indictment claim Samourai Wallet “facilitated more than $100 million in money laundering transactions from illegal dark web markets.”
The definition of non-custodial wallets as money service businesses, and the resulting prosecution of wallet administrators, could set a dangerous precedent in the broader Bitcoin space, with implications for internet freedom and essentially It can put all individuals, organizations, and organizations at risk. Technology that involves the transfer of financial transactions without controlling funds.
Can a non-custodial wallet become a money services business?
FinCEN’s 2019 Guidance For those who manage, exchange, or use virtual currency, a remitter is defined as a “person providing remittance services” or “any other person engaged in the remittance of funds.” As stated in the guidance, “The sender initiates the transaction that the sender actually executes.”
The guidance further states that “the term ‘remittance service’ is defined to mean receiving currency, funds, or other value in lieu of currency from a person.”
Transmit currency, funds, or other value in lieu of currency by any means to another place or person. ”
As a non-custodial Bitcoin wallet, Samourai Wallet’s operators do not control users’ funds and therefore, contrary to prosecutors’ claims, technically cannot “accept” deposits or “conduct” fund transfers. I can’t.in a fraudulent receipt
Transfer of funds, including funds deposited in Samurai Wallet by undercover agents in the Southern District of New York. ”
However, technically speaking, this agent deposited funds into an application running locally on his device without the involvement of the Samourai operator. This situation was rightly pointed out by prosecutors throughout the indictment, stating that “the private keys of these cryptocurrency addresses are stored in each user’s address.” “Personal mobile phone”, “These private keys are not shared with her Samourai employees”, “Her Samourai software on the user’s mobile phone broadcasts transactions to the blockchain”.
The indictment further alleges that Samourai Wallet “facilitates transactions between Samourai users,” but this claim does not imply that Coinjoin transactions facilitate transactions between users at all, but rather that all users When faced with the fact of creating a shared transaction that spends money, it seems patently wrong. their own funds to themselves.
The indictment also repeatedly alleges that Samourai creates “new addresses” used during transactions and that “Samourai servers are responsible” for broadcasting transactions, but transactions are not broadcast on users’ devices. They claim that this is also technically incorrect, since it is only created by Samourai. If a user chooses to broadcast a transaction via her Samourai’s node, it will broadcast the transaction on the user’s behalf. For those running their own nodes using his Samourai wallet known as “Dojo”, transactions are broadcast by the users themselves.
Figures provided by node provider Ronin Dojo show that up to 85% of Whirlpool users run their own Dojo. It is questionable whether organized criminals would rely on the nodes provided by his Samourai Wallet. This is because Samourai Wallet operators can effectively anonymize transactions by having knowledge of users’ extended public keys. This is an often criticized design choice in the Samourai Wallet architecture. What is noteworthy is that the indictment makes no mention of a “dojo.”
Department of Justice challenges FinCEN guidelines
The indictment against Samurai appears to suggest that the Department of Justice does not believe that the FinCEN guidelines apply, as reflected in the language used to describe Samurai’s services. Prosecutors are focusing on the broadcasting of transactions, the operation of centralized servers, and the subsequent collection of fees. Services provided:
“The Samourai server is responsible for broadcasting Ricochet transactions to the BTC network (…) From Whirlpool and Ricochet, RODRIGUEZ and HILL earned at least $4 million in fees.”
The Justice Department’s claims appear more consistent with recent claims Recommendations Published by the Financial Action Task Force. Although FATF, an intergovernmental body established by the G7 in 1989 to combat money laundering and terrorist financing risks, is not a regulatory body, the task force’s recommendations will inform AML/CFT regulation around the world. It is known to be the basis for
In a recommendation issued in 2021, the FATF expanded the definition of virtual asset service providers to “decentralized assets that have a central party with some involvement or control,” such as the development of user interfaces for accounts that hold “administrative” keys. Expanded as “exchange or platform.” “” or “Charging Fees.”
According to the logic put forward by the FATF, it appears that the development of individuals, organizations, and technologies that interface with financial transactions may require a money services business license. In particular, the new AML package adopted by the European Parliament last week aims to update current AML regulations in accordance with the FATF recommendations, specifically exempting self-custodial services.
A similar attempt to circumvent the FinCEN guidelines is currently being made in the Tornado Cash case.in Opponents In a ruling issued April 26, prosecutors argued that the definition of a transfer “does not require the sender to have ‘control’ over the funds being transferred,” and that the U.S. codified permanent federal law It emphasizes that Article 1960 of the Code expands the definition. Remittances aimed at “transferring funds on behalf of the people by any means available.”
According to the Justice Department’s interpretation, AT&T requires a money services business license so customers can access PayPal, ISPs require money services business licenses so users can access online banking services, and mail carriers must Requires a Money Services Business License. License to deliver cash by post, Grocery stores need money services business license to hand out change, Telegram, WhatsApp, Signal and X (formerly Twitter) allow users to share PSBT and Lightning If you wish to use the Platform, you will need a Money Services Business License. Invoice – We will then assume that all such services require full customer confirmation.
Can Bitcoin Network do KYC?
The indictment sent ripples through the Bitcoin ecosystem, leaving everyone involved in broadcasting Bitcoin transactions in a state of uncertainty, including Bitcoin miners and node operators. Non-custodial Lightning wallet Phoenix has since announced Suspension of operations in the United States. Wasabi Wallet is a Bitcoin wallet that prioritizes privacy. Banned US users You will no longer be able to access that service or software.
Reading the indictment, it appears that everything we knew about the regulatory aspects of remittances may have been exploited, and the indictment even attempts to criminalize self-expenditure. The indictment says self-spending, as evidenced by CoinJoin and Samurai Ricochet, “further obscures the ownership of the funds.” However, any Bitcoin wallet would allow users to generate self-spending, essentially circumventing the blockchain’s oversight mechanisms and censorship, further confusing the regulatory framework.
The fundamentals for implementing KYC on the Bitcoin network were already being studied in 2016. mit chain anchor This project considers introducing identities and permission groups to the blockchain to prevent unregistered users from having their transactions mined within a block.
Miners become more centralized, with approximately 47% of hashrate mining rewards being stored. by one administratorThe Bitcoin network’s KYC plans may not seem so far-fetched, including the AntPool, F2Pool, Binance Pool, Brainins, btcom, SECPOOL, and Poolin pools. Already in 2023 he will start F2Pool Censorship of transactions In line with OFAC sanctions list.
Since the indictment of the Samurai founder, the F.B.I. We have issued a PSA Regarding virtual currency money service businesses, the public is cautioned to avoid services that do not require knowledge of customer information.
If non-custodial service operations are ruled to be classified as money transfers, it could open the door to KYC for all service operation communication protocols, from Nostr to WiFi hotspots and telecom providers. An unreasonable interpretation could even suggest that KYC registration is required to use expressways or purchase briefcases.
Plans to verify your identity over the Internet have existed since early 2014, when the US government sought to introduce an “Internet Driver’s License,” similar to the introduction of digital IDs planned around the world. .
It should be noted that the treatment of the Samurai founders currently in pre-trial detention does not compare with the treatment of financial crime suspects around the world. Since 2000, traditional financial institutions such as UBS, JP Morgan, and Bank of America have More than $380 billion in fines. The argument that traditional banks are primarily used for legal transactions also applies to Samurai Wallet, as does the indictment. reportedly Samourai claims that only 3.6% of its total transaction volume is illegal fund transfers, with the remaining 96.4% being legitimate uses.
The Samurai case will be presided over by Judge Richard M. Berman, who previously presided over the Jeffrey Epstein case. In 2005, Berman control Police’s random searches of passenger bags on New York City’s subways did not violate the U.S. Constitution.
This is a guest post by L0la L33tz. The opinions expressed are entirely their own and do not necessarily reflect the opinions of his BTC Inc or Bitcoin Magazine.
