SDNY Withholding Of Evidence Undermines Charges Against Samourai Wallet

This morning, a letter filed by the defense of Samourai Wallet developers Keonne Rodriguez and William Lonergan Hill revealed that the Southern District of New York (SDNY) had suppressed exculpatory evidence in the criminal case. 

According to the filing, the prosecution had consulted FinCEN prior to the indictment of the developers on the viability of bringing unlicensed money transmission charges against a non-custodial service.

“A mixer like Samourai that does not take custody of the cryptocurrency by possessing the private keys would strongly suggest that Samourai is not acting as an MSB,” FinCEN told the prosecutors, according to the filing.

In internal communications, prosecutors stated that they may bring charges based on the “functional control” of the code, likely referring to Samourai’s control over the user interface and Samourai Wallet’s coinjoin server. The prosecution stated that such an argument “has never been addressed in the guidance,” acknowledging that “it could be a difficult argument to make.”

The communications between FinCEN and SDNY were revealed following a so-called Brady request, ordering the government to hand over any evidence that may exonerate the developers of the charges. 

The government is required to hand exculpatory evidence over to the defense two weeks after filing its indictment at the latest. The late disclosure of such highly relevant materials may now have misled the court, the letter alleges, affecting both the bail requirements placed on the developers as well as the judge’s inclination to deny the filing of a motion to dismiss.

The defense is now seeking a hearing to determine potential remedies to SDNY’s conduct, including the dismissal of charges.

“It is hard to imagine a clearer example of ‘regulation by prosecution’ than what we have here,” the defense states, referring to the recent Blache memo. “The relevant regulator telling the prosecutors that Samourai Wallet was not a money transmitter – under the same public guidance that Mr. Rodriguez and Mr. Hill relied on to guide their conduct – and the prosecutors going ahead and indicting them for operating an unlicensed money services business anyway.”

FinCEN’s stance on non-custodial service providers shared with SDNY echoes its 2019 guidance, which stated that “a cryptocurrency wallet provider is to be classified as a money transmitter if “the host has total independent control over the value (although it is contractually obligated to access the value only on instructions from the owner).”

Advocacy groups and legal scholars alike have long argued that the prosecution of Samourai Wallet developers, as well as the prosecution of Tornado Cash developers Roman Storm and Roman Semenov, constitute a clear violation of FinCEN guidance.

While Samourai’s Brady request was successful, a similar request made by Tornado Cash developer Roman Storm attempting to compel the Government to disclose “any…