The judge in the Tornado Cash case issued an oral decision today, denying both the Defense’s motion to compel discovery and their motion to dismiss the charges. This represents a major setback for Defense, and the judge’s reasoning may not bode well for developers and projects going forward.
Motion to Force
The Defense Department’s proposal to enforce discovery seeks to reach a wide range of government communications, including exchanges with foreign authorities under the Mutual Legal Assistance Agreement (MLAT) and domestic agencies such as the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network. (FinCEN). Citing Criminal Procedure Code 16, the Defense Department said these items are important to the government’s case and may constitute exculpatory evidence. The judge, however, made it clear that Rule 16 sets a strict requirement: The Defense must show that the information requested is relevant to their case, not just speculation as to how useful it might be.
The court dismissed the Defense’s arguments as speculative, noting that indications of what the information “might” or “could reveal” did not meet the required standard of materiality. For example, the Ministry of Defense argued that MLAT’s communications with the Dutch government could reveal evidence against Tornado Cash or reveal the government’s views on the investigation. The judge found this reasoning unappealing, stressing that materialism cannot be established by speculation or vague assertion.
The court similarly denied the Defendant’s request for all communications between the government and OFAC and FinCEN. Although the Defense argued that the documents were necessary to understand the government’s theories and potential witnesses, the judge concluded that the defense failed to show how these communications were directly related to the charges against them. The court also emphasized that the burden is on the Defense to show a direct connection between the requested documents and their defense strategy, a burden they did not meet.
When the Defense suggested an in camera review—the judge’s private examination of the requested documents—to find out material, the court refused. The judge argued that granting such a request based on presumptive immunity would set a dangerous precedent, effectively forcing in camera review in all criminal cases where the defendant speculates about the relevance of certain documents. This, the judge emphasized, would undermine the purpose of Rule 16 and turn the pretrial discovery process into an unrestricted search for potentially useful evidence.
The defense also expressed concern about the situation Brady v. Marylandarguing that the government may withhold evidence that is unavoidable or inescapable. Although the court acknowledged the government’s obligations under Bradyfound no indication that these activities had been neglected. Without substantial evidence suggesting the government was withholding information, the court saw no reason to compel further disclosure. The judge warned that although the lawyers’ statements are possible, they do not have the necessary support to warrant court intervention. He said, however, that if he later found out that the government had “defined its obligations too narrowly” there would be “negative consequences for their case.”
Motion to Dismiss
The motion to dismiss presented a set of very important issues. Central to the defense debate was the definition of “money transmitter” under the Bank Secrecy Act (BSA). The Defense argued that Tornado Cash did not qualify as a money transmitter because it did not control users’ funds; it simply facilitates the flow of cryptocurrencies. The court, however, rejected this narrow definition. The judge clarified that the scope of the BSA does not require financial regulation; Tornado Cash’s role in simplifying, anonymizing, and transferring cryptocurrencies was enough to bring it within the purview of the law. The judge compared Tornado Cash to cash registers, which are considered business remittances.
Further complicating the defense’s argument was their reliance on FinCEN’s 2019 directive, which uses a four-factor test to determine whether a wallet provider is a money transmitter. Defense said the directive, which includes “total independent controls”, should apply to Tornado Cash. The court disagreed, saying the standard is specific to wallet providers and does not extend to aggregators like Tornado Cash. As a result, Tornado Cash’s lack of “full independent control” over funds was unrelated to its classification as a money transmitter.
Another important point in the court’s analysis was the distinction between an express and an operative code under the First Amendment. The defense argued that prosecuting Storm for his involvement with Tornado Cash was tantamount to punishing him for writing the code, which they said contained protected speech. The judge agreed that while the code may not be considered clear, the direct use of the code to facilitate illegal activities—such as money laundering or evading sanctions—is outside the bounds of First Amendment protection. The judge stressed that the court must focus on the behavior that is in accordance with this law, not just on its own behavior. Even under moderate scrutiny, which applies to neutral barriers to speech, the judge found that the government’s interests in preventing money laundering and controlling unauthorized money transfers outweighed the limitations imposed by the relevant laws.
The court also addressed concerns about the immutability of Tornado Cash’s smart contracts, an issue raised by both parties. The judge acknowledged the existence of a factual dispute but noted that it was not determinative of the present motion. However, the issue of non-conformity may play a role in the trial in determining the extent of Storm’s control over the service and his responsibility for its operation.
In closing remarks, the judge emphasized that while the use of code to communicate ideas may be protected under the First Amendment, using that code to facilitate illegal activities is not. This distinction is important in the context of emerging technologies such as blockchain, where the line between speech and behavior can be blurred. The court’s decision serves as a reminder that the legal system is ready to hold participants in the digital economy accountable, even if it faces difficulties in applying traditional legal principles to new and evolving technologies.
The full text of the decision will be released once it has been prepared by the court reporter.
This is a guest post by Colin Crossman. The views expressed are entirely their own and do not reflect those of BTC Inc or Bitcoin Magazine.