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Daniel Barabander
@dbarabander
There is no law more existential for crypto projects than § 1960, which makes it a crime to operate an “unlicensed money transmitting business.” § 1960 is front and center in the Tornado Cash case, where a court held in September that Roman Storm could violate the statute even without control over user funds. Today, @atuminelli, @jchervinsky, and I published the most detailed analysis I’m aware of on how to interpret the statute in The International Academy of Financial Crime Litigators. Our core finding: § 1960 requires control, so the Tornado Cash court got it wrong. Check out the article here: https://edit.financialcrimelitigators.org/api/assets/cd682a1c-1cb0-4c99-a491-ac6155f4bdc2.pdf.
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Daniel Barabander pfp
Daniel Barabander
@dbarabander
Let’s run through why § 1960 requires control. Because I’m going to be referring to the text a lot, here’s § 1960 in its entirety: https://www.law.cornell.edu/uscode/text/18/1960 § 1960(a) makes it a crime for a person to “conduct[], control[], manage[], supervise[], direct[], or own[] all or part of an unlicensed money transmitting business.” OK, so the key term is “unlicensed money transmitting business.” What’s that? We must go to § 1960(b)(1) to find out. That provision says that an “unlicensed money transmitting business” is defined as an entity that is a “money transmitting business” AND does either (A), (B), or (C). Because of the AND, if we do not have a “money transmitting business,” then we do not need to go into (A), (B), or (C) because we definitionally do not have an “unlicensed money transmitting business” and therefore cannot violate § 1960(a).
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Daniel Barabander
@dbarabander
So what constitutes a “money transmitting business” is the key question. Well, that’s unfortunately not defined in this statute (at least not as a whole term). But “money transmitting” is defined under § 1960(b)(2) as including “transferring funds on behalf of the public by any and all means.” Alright, we finally arrived at the heart of it: To be a “money transmitting business,” we need to figure out what it means to “transfer[] funds on behalf of the public.” To answer this question, we reviewed the case law (all of the circuit law on point!) and determined that “transferring funds on behalf of the public” requires an intermediary to obtain control over funds to receive them and relinquish control over the funds to transmit them.
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Daniel Barabander
@dbarabander
The Second Circuit case of Bah, which is binding on the Tornado Cash court, shows why. In that case, the defendant owned a restaurant in New York, would receive cash from customers there, drive it across the river to New Jersey, and send it from his business in New Jersey to recipients abroad. The defendant had a money transmitting license in New Jersey but not New York, so the government was in a bit of a bind because it was lawful to transmit the money in New Jersey. To try and get around this, the government argued that the defendant driving the funds from New Jersey to New York itself constituted a “transfer” under § 1960(b)(2).
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Daniel Barabander
@dbarabander
The court rejected this argument. Why? Because the defendant never relinquished control over the funds when driving them from New York to New Jersey. As stated by the court: “So long as Bah (or his agents) maintained possession of any payments, the movement of the money across state lines would not itself violate the statute, because § 1960 prohibits the ‘transfer"’ of money, not the transportation of money by an individual.” Bah clarifies that to "transfer" funds under § 1960(b)(2), a party must relinquish control over the funds. Logically, for a party to relinquish control, it must first obtain control. This is what it means to "receive" funds: it is the process of a party first obtaining control over funds that might later be part of a transmission.
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Daniel Barabander
@dbarabander
Circuit courts have repeatedly applied this “receive” and “transmit” framing of “money transmitting” under § 1960(b)(2). For example, the Second Circuit in United States v. Velastegui defined a money transmitting business as one that "receives money from a customer and then, for a fee paid by the customer, transmits that money to a recipient in a place that the customer designates." Similarly, in United States v. Banki, the Second Circuit cited the Velastegui definition and held that it was "legally correct" that "[t]o be a ‘money transmitting business,’ the business must transmit money to a recipient in a place that the customer designates, for a fee paid by the customer." In United States v. Singh, the Ninth Circuit adopted Velastegui’s definition.
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