Defense lawyers in Samourai, Tornado Cash cases accuse prosecution of withholding exculpatory evidence

Defense lawyers in two critical crypto trials have accused the prosecution of failing to properly disclose a phone call with senior employees of the Treasury Department's Financial Crimes Enforcement Network (FinCEN) bureau, thereby withholding evidence that could prove vital to their cases. 

The defense lawyers have registered their concerns ahead of upcoming trials for the founders of two protocols: Samourai Wallet and Tornado Cash, which share similarities in their ability to act as "mixers," obscuring the trail of transactions on public blockchains like Bitcoin and Ethereum. Roman Storm, a co-founder of Tornado Cash, and Samourai co-founders Keonne Rodriguez and William Lonergan Hill face several charges related to money laundering and sanctions violations for their work in creating and operating the protocols. 

At the heart of the recent dispute is a call between two FinCEN employees, including its head of virtual assets enforcement, Kevin O'Connor, and government prosecutors. On the August 23, 2023 call (the same day Storm's indictment was unsealed), the FinCEN employees said that Samourai's non-custodial nature, in that it does not take direct control of users' cryptocurrency, "would strongly suggest that Samourai is not acting as an MSB [money services business]," according to the prosecutors' summary of the call. 

Whether or not Samourai and Tornado classify as MSBs is critical to one of the charges shared by both cases: conspiracy to operate an unlicensed money-transmitting business (classified by FinCEN as MSBs). Yet, the prosecutors chose to move forward with the charge in the Tornado Cash case and, six months later, the Samourai case. (Even if the charge is dropped, other money laundering-related charges would still stand for each case.)

"Samourai Wallet stated publicly that they were not a money transmitting business because they did not take custody of any Bitcoin and were not required to obtain a license from FinCEN according to their attorney," lawyers for Samourai's co-founders argued in a recent filing.  "The fact that FinCEN took the same position regarding Samourai Wallet and conveyed it to these same prosecutors, and that the prosecutors nonetheless charged the Defendants with committing a crime is shocking."

The defense lawyers requested a hearing to discuss the alleged violation of Brady, a rule stemming from a Supreme Court decision that mandates prosecutors turn over all potentially exculpatory evidence to defense attorneys, regardless of whether or not the defense specifically requests it. 

Prosecutors downplay allegations

In a response to the defense's filing, government prosecutors downplayed the accusation that they committed a Brady violation by withholding the call. "The Government disclosed all known substantive communications between the prosecution team and FinCEN regarding Samourai Wallet months in advance of pretrial motions and trial...Nothing more is warranted," the Justice Department prosecutors wrote. 

The prosecutors argued that the FinCEN employees failed to give firm, official guidance on the question. "The Government acted in good faith to disclose the informal, individual opinion expressed by two FinCEN employees during a phone conversation regarding whether those employees believed that Samourai needed to register as a money transmitting business under FinCEN’s regulations and public guidance," the filing states. 

Yet, in their subsequent reply, the Samourai defense lawyers argue that the call directly undermines the accusation that Samourai's co-founders knowingly engaged in a criminal conspiracy. 

"That FinCEN employees—including the one responsible for enforcing FinCEN rules against companies like Samourai Wallet—had the same 'opinion' as Mr. Hill and Mr. Rodriguez is evidence that they reasonably believed that they did not require a FinCEN license or anti-money laundering controls," the lawyers wrote. 

The judge in the Samourai case, Judge Richard M. Berman, ordered the defense counsel to raise the issue in its pretrial motion due on May 29, writing, "No need for multiple motions." 

Dispute spreads to Tornado case

Lawyers for Storm, in a filing from Friday, seized upon the opportunity to argue that the prosecution in his case failed to appropriately disclose the "exculpatory" evidence, and re-petitioned the government to search for more communications with FinCEN about Tornado Cash. 

Though the Department of Justice recently dropped the prong of the charge that relates to Tornado's registration as an MSB, Storm's lawyers argue that the government still committed a Brady violation by not disclosing the call. The withholding "materially prejudiced his defense," the lawyers argue, by not allowing Storm "...the opportunity to raise this issue in support of his motions to dismiss and to compel discovery of FinCEN materials." 

The filing also points out that some details of the call remain unknown. "The government attempts to minimize the importance of the FinCEN call by characterizing the statements as 'off-the-cuff opinions of two FinCEN employees' but fails to explain what the purpose of the call was and why it included such senior FinCEN officials," the filing states. 

Government prosecutors rebuffed a request by Storm's lawyers for more information related to Samourai, arguing that though the protocols "may share some superficial similarities, they operated quite differently," meaning Brady wouldn't apply. 

"But what the government characterizes as a superficial similarity is, in fact, the core feature that lies at the heart of the conflicting interpretations of FinCEN guidance and the scope of Section 1960: the noncustodial nature of both protocols," the defense lawyers argue.

U.S. District Judge Katherine Failla has not yet ruled on the motion in Storm's case.