DOJ Shifts Focus From Crypto Exchanges To Illicit Activities

The Department of Justice (DOJ) has announced a significant shift in its approach to regulating the cryptocurrency industry. In an April 7 memo, Deputy Attorney General Todd Blanche declared that the DOJ will no longer prioritize enforcement actions against virtual currency exchanges, mixers, and non-custodial wallets. Instead, the focus will be on individuals and groups using these technologies to support illicit activities such as terrorism, trafficking, and organized crime.

This change in strategy has raised questions about the ongoing criminal case against Tornado Cash developers Roman Storm and Roman Semenov. Their trial, initially scheduled for next week, has been postponed until July. The case centers on whether developers can be held criminally responsible for creating open-source code that others use to commit financial crimes. Tornado Cash, a crypto mixer, is comprised of immutable smart contracts and an optional user interface with enhanced privacy features, which the DOJ claims the developers controlled.

The DOJ charged Storm and Semenov in 2023 with conspiracy to launder money, operate an unlicensed money transmitting business, and violate sanctions laws under the International Emergency Economic Powers Act (IEEPA). The charges are related to their role in developing Tornado Cash, which is accused of helping launder funds tied to North Korean cybercrime. Notably, the charges do not address anyone who actually used Tornado Cash to launder ill-gotten gains, only the individuals responsible for creating the code central to the Tornado Cash protocol.

Jason Gottlieb, a litigation partner at Morrison Cohen, commented on the shift, stating, “The DOJ is finally recognizing that software developers are not the right targets. This is a long-overdue course correction.” However, the impact of this shift on the Tornado Cash case remains unclear. The defendants allegedly took several actions to make the Tornado Cash protocol easier to use and more anonymous, even though they knew the protocol was being used for illicit purposes. For example, the indictment claims that the defendants developed and operated a front-end user interface that facilitated deposits into the Tornado Cash protocol, operated and benefited from a relayer service which made it more difficult to associate digital wallets with the deposits, and added sanctions screens to the user interface which they knew to be ineffective.

Gottlieb explains that if the jury convicts at trial, it will be hard to know whether the defendants were found guilty due to their determination that the defendants developed the core immutable smart contracts or because of other factors, such as the defendants’ involvement with the protocol’s user interface and relayer service. In a civil case, the parties would likely file motions for summary judgment, and the judge would be able to offer an explanation of how the law applies to the evidence adduced at trial. However, because this is a criminal case, we won’t have that kind of insight. “And, unfortunately, if there is a guilty verdict, other prosecutors can build on it,” says Gottlieb. This will have a chilling effect for founders and innovators in the crypto/digital asset space looking to build infrastructure, particularly involving privacy-preserving technology.

A prominent crypto attorney, who offered comments on the condition of anonymity, stated that the DOJ’s new position—namely that developers that create and deploy open-source software should not be targeted based on how others use that software—should inform how this case is resolved. This is particularly true with respect to systems designed so that no single individual can control the value flowing through the system. Significantly, in a separate related civil action, the Fifth Circuit Court of Appeals recently ruled that Tornado Cash software is not property and cannot be sanctioned under the IEEPA, since it is merely code. That decision has become central to the defense’s latest motion to seek dismissal of the case.

Amicus briefs from the Blockchain Association and Coin Center back the defense. The Blockchain Association emphasizes the lack of developer control over user funds, while Coin Center argues that the defendants’ activity doesn’t justify sanctions liability. Whether the DOJ’s policy change will influence the court’s rulings in Tornado Cash remains to be seen. Notably, the judge in this case, the Honorable Katherine Polk Failla, also presided over the Uniswap case from August 2023. In that civil case, Judge Failla dismissed a class action lawsuit against Uniswap Labs. The plaintiffs had alleged that Uniswap was responsible for losses they incurred due to scam tokens traded on the decentralized exchange. Judge Failla ruled that Uniswap could not be held liable for the actions of third-party token issuers.

In February 2025, the U.S. Court of Appeals for the Second Circuit largely upheld Judge Failla’s decision, affirming the dismissal of the federal claims. The appellate court agreed with the lower court’s analysis, stating that it "defies logic that a drafter of a smart contract, a computer code, could be held liable . . . for a third party user’s misuse of the platform." If that logic is applied here, the defendants could have a good shot at beating the charges.