Samourai Indictment Count Two Could Have Serious Implications For All Wallets \ stacker news ~bitcoin

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Samourai Indictment Count Two Could Have Serious Implications For All Wallets

1869 sats \ 78 comments \ @siggy47 24 Apr bitcoin

Money Transmitter Definition

Rodriguez and Lonergan Hill are charged in Count 2 with operating an Unregistered Money Transmitter Business. Under U.S. federal law, a money transmitter is defined as a service that provides money transmission services. This means that the entity is accepting currency, funds or other value from one person and transmitting it to another location or another person by any means. The only exception to this rule is when purchasing an item from a vendor. Various federal regulations have stated that that the definition of money transmitter includes the acceptance and transmission of other value that substitutes for currency, including cryptocurrency.

The Indictment

Here is the actual language from the indictment

COUNT TWO (Conspiracy· to Operate an Unlicensed Money Transmitting Business) The Grand Jury further charges: 31. The allegations contained in paragraphs 1 through 28 of this Indictment are repeated and realleged as if fully set forth herein. 32. From at least in or about 2015 up to and including in or about February 2024, in the Southern District of New York and elsewhere, KEONNE RODRIGUEZ and WILLIAM LONERGAN HILL, the defendants, and others known and unknown, willfully and knowingly combined, conspired, confederated, and agreed together and with each other to commit an offense against the United States, to wit, operation of an unlicensed money transmitting business, in violation of Title 18, United States Code, Sections 1960(b )(1 )(B) and (b )(1 )(C). 33. It was a part and object of the conspiracy that KEONNE RODRIGUEZ and WILLIAM LONERGAN HILL, the defendants, and others known and unknown, would and did knowingly conduct, control, manage, supervise, direct, and own all and prut of an unlicensed money transmitting business, which affected interstate and foreign commerce, and (i) failed to comply with the money transmitting business registration requirements under Section 5330 of Title 31, United States Code, and regulations prescribed under such section, and (ii) otherwise involved the transportation and transmission of funds that were known to the defendants to have been derived from a criminal offense and were intended to be used to promote and support unlawful activity, to wit, RODRIGUEZ and HILL conducted, controlled, managed, supervised, directed, and owned all or part of Samourai, a business that transferred funds on behalf of the public, without meeting the Federal registration requirements set forth for money transmitting businesses...

Conclusion

Putting aside the mixing aspects of the Samourai Wallet, the indictment clearly considers the act of owning the wallet a violation of the law, because it operates without a Money Transmitter license. I'm not saying the U.S. government would choose to prosecute all wallets, custodial or otherwise, but it is clear that they believe they could.

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433 sats \ 5 replies \ @kepford 24 Apr

I'm pretty cynical. There are few things more frightening to me than "a jury of my peers". I can't imagine a group of people being able to wrap their heads around this. We are having all these debates online about fighting this and I just keep thinking about my experience serving on a jury trial.

I'm not lawyer but I think many mistakenly believe the law is like code or math. It is not. If it were that simple we wouldn't need judges or juries. This is a dark day for bitcoiners, privacy, and freedom.

Not to say I didn't expect this. I have for a long time. But it still sucks. The state is our enemy. All of ours. Not just bitcoiners. Its an evil entity that will never stop seeking more control and power until it is abolished.

76 sats \ 0 replies \ @javier 24 Apr

Yes, and we must be prepared for a real civil war, that will happen not so long from now. It's going to be normal people against brainwashed people, and we must be prepared with everything we can, specially in the economic sense. Our first target must be the tax office, because that is what finances everything, and it's the heart of their system. They can always print money, but if they don't collect taxes, inflation will autodestroy them.

Our second target is the judicial system, and substitute it for natural law. I will talk more in the future about this.

118 sats \ 0 replies \ @kepford 24 Apr

The main reason I have hope in bitcoin is because of its technical and game theory strength. Victory will not be won in the courts or with the political system. There is no way you get the masses to think the way we do. It has to be won technically and functionally. It has to work even when people don't believe in it or don't understand it.

10 sats \ 2 replies \ @siggy47 OP 24 Apr

Well said, as usual. Your points about the law are spot on.

118 sats \ 1 reply \ @kepford 24 Apr

Thanks. Never asked an actual attorney about that.

Until a few years ago I didn't see the law that way. I pretty much believed that the law was the law. Reading The Anarchist Handbook I found eyes opened by the many examples of the many interpretations of a law. I believe the selection was by John Hasnas.

I highly recommend that book as a primer on Anarchism. Offers many angles from different starting points. Easy read as well for an anthology.

27 sats \ 0 replies \ @siggy47 OP 24 Apr

The only anarchist stuff I read was Men Against The State, which I recommend too. I have to check this one out.

189 sats \ 3 replies \ @k00b 24 Apr

It's especially interesting because they aren't custodial. It's an attempt to redefine money transmission as most lawyers, at least the ones I've talked to, understand it. Perhaps New York and other jurisdictions define matchmaking as money transmission? Or they're just aiming for the fences.

139 sats \ 0 replies \ @siggy47 OP 24 Apr

Yes. I'm glad you see it too. It's really a dramatic overreach, and everyone will naturally be focused on the mixing allegations.

124 sats \ 1 reply \ @k00b 24 Apr

On or about October 11, 2022, Samourai engaged in the unlicensed receipt and transmission of funds, including funds deposited into a Samourai wallet by an undercover law enforcement agent located in the Southern District of New York.

The more I read the indictment, the more it sounds like they don't understand how Samourai works. They think using Samourai software means Samourai is receiving and transmitting funds. They'll have to find a judge/jury that can understand the difference.

10 sats \ 0 replies \ @Bell_curve 25 Apr

I tried using Samourai a few years ago. I remember thinking this wallet is too complicated.

141 sats \ 30 replies \ @Cje95 24 Apr

I am really trying to wrap my head around the indictment to Operate an Unlicensed Money Transmitting Business... It is an extremely broad thing since it is a piece of code and as you pointed out could make all wallets run afoul which is bizarre. Not to mention open-source wallets like TaHo is anyone and everyone who helped open-source it now liable? I don't see how this ends up sticking and my guess would be it's for the big splash of news it will cause for the PR (even though it's a lot of bad PR in my opinion) and to get the people to plead out to some lesser count.

236 sats \ 28 replies \ @siggy47 OP 24 Apr

This really has my head spinning. Like you, I'm focused on the fact that these wallets are code. Code has been deemed as speech, which is protected by the First Amendment. You can't criminalize software. But, that's what they seem to be doing. This needs to be fought aggressively. The cypher punks already fought and won this battle. The government shouldn't get a do over.

54 sats \ 19 replies \ @Cje95 24 Apr

To add to that its also not like this is malicious code! If this was code that purposefully did some shady stuff then I can at least see what the government is getting at. This isn't that so I fail to grasp the logic.

10 sats \ 16 replies \ @siggy47 OP 24 Apr

Code is speech. They don't get an exception by calling it malicious under any circumstances, IMO.

54 sats \ 9 replies \ @premitive1 24 Apr

You can't imagine any code that violates free speech? All code, no matter what it does, absolves its creators of culpability? If I created a virus that wrecked the power of a city, resulting in the death of thousands? That's free speech?

25 sats \ 2 replies \ @02bcd3eeb0 24 Apr

Uh, in that case the damage was done because the city executed the code. Code by itself can't do anything to you unless you run it. Keeping your systems secure is on you.

0 sats \ 1 reply \ @premitive1 24 Apr

Here's another version to better suit your position. Person A drugs you, but person B asks you to go to the ATM, empty it out, and give them all the money. Did person B do anything wrong?

0 sats \ 0 replies \ @02bcd3eeb0 24 Apr

Morally wrong, sure. But legally? Person A committed the crime. One is an act of violence, the other is not.

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0 sats \ 4 replies \ @siggy47 OP 24 Apr

Can we put aside the mixing aspect and focus on count two? You creating a virus would subject you to criminal liability. It's your act that made it criminal. Let's say you made that virus for a white hat defense?

0 sats \ 3 replies \ @premitive1 24 Apr

I'm happy to consider those two things separately, but I think the implication is that some code violates private property.

134 sats \ 2 replies \ @siggy47 OP 24 Apr freebie

I didn't go through it carefully, but I think this article sums up the law regarding code as speech pretty well: https://www.pbs.org/wgbh/nova/article/is-code-free-speech/

In the 1990s, the Electronic Frontier Foundation—which, at the time, was a fairly new organization—took on a series of cases on behalf of a cryptographer named Daniel Bernstein, who argued that he had a right to make public certain cryptographic programs that he’d created. Bernstein wanted to publish an algorithm, a mathematical paper that explained the algorithm, and the source code for a computer program that incorporated it. But the government required Bernstein to apply for a license to do all of this— and to submit his ideas for federal review.

Bernstein sued and eventually won the case. Software source code was deemed speech protected by the First Amendment.

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0 sats \ 0 replies \ @premitive1 24 Apr

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54 sats \ 5 replies \ @Cje95 24 Apr

True but even with Freedom of Speech there are limits with threats, fraud, and defamation as examples.

0 sats \ 2 replies \ @StillStackinAfterAllTheseYears 24 Apr

True, but in the case of code, the exceptions aren't inherent -- someone would have to use the code to commit a crime, so it's the action, not the code, that's illegal.

(IANAL, just someone who reads a fuckton and listens to tons of Darknet Diaries, so happy to be corrected.)

21 sats \ 1 reply \ @Cje95 24 Apr

I'm not 110% certain of this but I would find it odd that if you create code that flips off temp regulation in a computer and then give it the ability to adapt and spread on its own that that code itself would be a violation if that makes sense. The code itself might be the one spreading itself but the creator or the code itself would seem to be a violation of freedom of speech since it is harmful

0 sats \ 0 replies \ @StillStackinAfterAllTheseYears 24 Apr

nod As I noted, I'm not a lawyer (have taken a bunch of infosec classes towards a Master's degree, but that's more focused on tactics than legality), and I'd imagine there is a line at which it would not be speech (though I'm not sure Samurai would fit that bill). And once it's operating as a worm, that's definitely different (as running the application is inherently an attack). Though it's running the code, not writing or possessing it, that would be the issue here.

Also, the cynical side of me wonders why the government hasn't looked at mining software as something that overheats computers dangerously.

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0 sats \ 1 reply \ @siggy47 OP 24 Apr

I get your point, but keep in mind that defamation and fraud are usually civil, not criminal, and I can't see the threat analogy applied to software.

0 sats \ 0 replies \ @Cje95 24 Apr

For fruad we just saw with SBF that while it is mostly civil it can be a banging criminal case as well.

0 sats \ 1 reply \ @StillStackinAfterAllTheseYears 24 Apr

Even shady software can have uses -- the same software a hacker might use to get into a system is used by pen testers and white hat hackers to test and secure those same systems. Code is neutral.

0 sats \ 0 replies \ @Cje95 24 Apr

I was using the idea of shady stuff as at least some way to look at some code that for instance turns off a computer's fan to force it to overheat... I would call that shady because while someone could be using it to increase cybersecurity the likelihood would be much more negative hence my reasoning.

0 sats \ 7 replies \ @premitive1 24 Apr

everything on computers is code and I think y'all are fixating on the wrong things in this story. The indictment clearly states that Samourai made millions of dollars worth of bitcoin in fees from running Whirlpool.

0 sats \ 6 replies \ @siggy47 OP 24 Apr

No doubt the mixing will earn the headlines. Count two is a bigger deal, IMO. The US District Court for the Southern District is probably the highest profile federal trial court in the country. They don't just bring counts for the hell of it.

0 sats \ 5 replies \ @premitive1 24 Apr

I think you're confusing the way the charges relate to each other. There are many ways to launder money. The charges allege that the WAY they laundered money was by running an unlicensed money transmitter.

125 sats \ 2 replies \ @siggy47 OP 24 Apr

We disagree.

0 sats \ 1 reply \ @premitive1 24 Apr

The allegations contained in paragraphs 1 through 28 of this Indictment are repeated and realleged as if fully set forth herein

This is the first paragraph of the second charge.

0 sats \ 0 replies \ @siggy47 OP 24 Apr

Every indictment is drafted like that. We can keep going back and forth. I say the defendants are charged criminally with operating a money transmitter business separate and apart from the mixing. You disagree. Let's see how it plays out.

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0 sats \ 1 reply \ @Cje95 24 Apr

The way that they are going after it for laundering by using the money transmitter path that itself is the issue. Due to how wallets function in general I mean really all of them are unlicensed money transmitters

0 sats \ 0 replies \ @premitive1 24 Apr

In a regular wallet the person transmitting the money is the person/people initiating a transaction. coinjoins make use of a coordinator. I made the point elsewhere, and repeat it here. There are many ways to launder money. In the TV show "Breaking Bad" they buy a car wash to launder money. The car wash was a registered business, paying taxes on claimed revenue, etc.

0 sats \ 0 replies \ @premitive1 24 Apr

Samourai wallet operated a coinjoin coordinator, the service of which they provided for a fee.

164 sats \ 5 replies \ @SpaceHodler 25 Apr

I don't know exactly how Samourai's mixing feature worked, but an ordinary non-custodial wallet app doesn't receive or send funds. It just helps you find a wallet address to send to that you control anyway (so you don't have to write your own code for BIP32 derivation paths, or do it with a pen and paper) and constructs and broadcasts transactions to a node (so, again, you don't have to write your own code or do it with a pen and paper).

50 sats \ 4 replies \ @siggy47 OP 25 Apr

You're right. I hope courts agree. How about a bitcoin/ lightning node?

266 sats \ 3 replies \ @SpaceHodler 25 Apr

A Bitcoin node validates transactions and propagates them to other nodes. It doesn't transmit value as it doesn't hold (custody) any value to transmit. To hold bitcoin is to own a private key that controls it, and nodes don't hold keys (unless you use the Bitcoin Core wallet, but then it would be your own wallet, not used to facilitate the transfer of other people's funds). (*)

I'm not sure about Lightning nodes. Perhaps running a routing node could be construed as money transmission, but AFAIU the routing node doesn't really own the funds, it just participates in a network that allows for the transfer to happen (just like a Bitcoin node does). Custodial Lightning is obvious, as it holds the user's funds and can rug pull. One concern I have about Lightning (in general) is that as it offers a level of privacy, it may be targeted on similar money laundering grounds to Samourai Whirlpool. And even if the law is unclear or it's outright unconstitutional, the degree to which the system hates privacy may make that irrelevant.

(*) Regardless, I'm running my Bitcoin node over Tor. I want neither the state nor ordinary thugs to see my node on the map.

20 sats \ 2 replies \ @siggy47 OP 25 Apr

Good write up. I agree regarding bitcoin nodes, and share your concern about lightning and liquid. How about the SN wallet?

54 sats \ 1 reply \ @SpaceHodler 25 Apr

The SN wallet would be super low hanging fruit. But perhaps not popular enough / not dealing with large enough amounts, at least for now, for them to care. WoS had more reasons to worry and they took action by withdrawing from the US.

Potentially another legal category is Phoenix / Breez type services.

100 sats \ 0 replies \ @siggy47 OP 25 Apr

Yep. Thinking about the implications is nauseating.

64 sats \ 1 reply \ @TNStacker 25 Apr

The days of NY deciding what money is will soon be over. This is how the powerful attempts to set terms as they lose power.

31 sats \ 0 replies \ @siggy47 OP 25 Apr

You're right

1054 sats \ 0 replies \ @Se7enZ 25 Apr

I suppose that includes a leather wallet in the back pocket, too?

54 sats \ 2 replies \ @SpaceHodler 25 Apr

A good read: https://primal.net/e/note1den70hpaptvzcstyq5uvfjcaa7cax06th9wtjvt06epra37pqdpq96n3yw

Some excerpts:

SW was a non-custodial service. This means that users controlled (their private keys to) their funds themselves and the service provider (SW) allowed the coordination between users through its infrastructure, such as the app, the server, the continued development, etc. This makes this case much more interesting and more concerning to me.

Regarding the first count against the men: Conspiracy to Commit Money Laundering. The SW indictment alleges that SW was a service that provided “large-scale money laundering and sanctions evasion.” So we are talking about users using illicit funds with the service and sanctioned entities using or receiving from the service. And we are talking about the SW coordinators “conspiring” with the relevant users to do this.

The indictment is constantly referring to SW as an “application” that is conducting or facilitating the mixing through a “centralized coordinator server.” Who controls the application and server? Allegedly the two men named in the indictment.

When it comes to SW’s Whirlpool service: Through their server, their application is selecting the inputs. Their application is communicating information between all users necessary for the mixing to occur. Their application is using the private keys on behalf of the users. Their application is broadcasting the mixing transactions to the Bitcoin network. The picture the indictment is painting is that the application and server are essentially doing the money laundering, as opposed to the users using the service. Similar verbiage and logic are used to describe SW’s Ricochet service too (adding hops to a send you intend to do).

The above summary is the most shocking piece of the indictment, in my opinion. The implications of this reach beyond Bitcoin-related apps and services. Think of the apps and services, just in general, that a user could use to engage in criminal behavior. Now think of arresting the developers/creators for what the user did.

Regarding the second indictment against the men: Conspiracy to Operate an Unlicensed Money Transmitting Business. The indictment says the SW operators were “involved in the transportation and transmission of funds intended to be used to promote and support unlawful activity.” There isn’t any mention or consideration of custody of funds in this. The logic of the indictment: Some users may have used SW’s application and server for “unlawful activity” and therefore, SW was involved in the unlawful activity. Again, this is a scary precedent. Think of the applications and servers out there right now that users may be using for unlawful activity.

I think the government will focus a lot on the coordinator’s knowledge and intent of the service being used for illegal activity. I believe this is how the government will “limit” the scope of the precedence and how it will try to differentiate the SW service from others.

Is a wallet software and developer a money service business now? How about a full node? These both facilitate the transmission of funds too.

50 sats \ 0 replies \ @siggy47 OP 25 Apr freebie

Thanks for posting this. It's a good analysis. I can certainly see an attack on the lightning network next.

10 sats \ 0 replies \ @machuPikacchu 25 Apr

The logic of the indictment: Some users may have used SW’s application and server for “unlawful activity” and therefore, SW was involved in the unlawful activity.

If this is how it's argued in court, then all banks are in the same category since they accept funds from criminals. It would also open companies like PayPal and Venmo for prosecution. Any judgment on this case will have to be narrow in scope or else it threatens the legacy banking system too. They'll almost certainly focus on the "unlicensed" aspect.

54 sats \ 2 replies \ @Coinsreporter 25 Apr

I don't want to believe it and I won't believe anything until we get more information.

I want to see if the two who got arrested can escape in the same way as CZ did.

CZ was just fined and never got caught. He just had a few 🎫 tickets and was fined for Laundering.

The difference would be big in the proceedings because CZ had all the world's best legal team to save him. I'm afraid this isn't the case for Lonergan and Rodriguez.

Is there something that we can do to help them apart from talking only?

10 sats \ 1 reply \ @siggy47 OP 25 Apr

https://www.cnbc.com/2024/04/24/us-seeks-36-month-sentence-for-ex-binance-ceo-changpeng-zhao.html

0 sats \ 0 replies \ @Coinsreporter 25 Apr

TBH 12 to 18 months or 36 months isn't that big for him. I'm just viewing this in comparison with Samourai indictment now.

Can the Samourai execs. get lower sentences or no sentence at all?

What CZ did, if he were here in India and caught, must have got a 3 to 7 years imprisonment along with the fines.

54 sats \ 1 reply \ @OT 24 Apr

Won't the terms "mixer" and "coin join" or collaborative TX be fought out here? Don't you think that its a strong argument that Samurai never had custody of anyone's coins?

111 sats \ 0 replies \ @siggy47 OP 24 Apr freebie

Yes. Definitely. I'm just more focused on this money transmitter crap. I wonder if it's their intent to just leave it out there and watch wallets get scared and fold their tents. We need some people with brass balls right now.

Also, in my experience the Southern District has all its ducks in a row before bringing a case. They may have something specific on these guys. Maybe the feds made a dark net arrest, made the guy an informant, and caught them in a sting saying something incriminating. That is probably likely.

54 sats \ 1 reply \ @premitive1 24 Apr

I think it's the whirlpool that distinguishes Samourai in the document, and not the regular functionality of wallets, which I didn't notice mentioned at all.

17 sats \ 0 replies \ @siggy47 OP 24 Apr

Oh, it's right there in count two. Count two has nothing to do with mixing.

0 sats \ 0 replies \ @Coinsreporter 25 Apr

Remember all those xpubs Samourai collected?

If you used Whirlpool in the past I would assume those UTXOs have no privacy.

0 sats \ 0 replies \ @siggy47 OP 25 Apr

This stuff kept me up last night. Can someone answer some questions I have about Samourai? I assumed it was a non custodial wallet that you could choose to either use as a regular wallet, or employ the mixing service, for which you paid a fee. Is this accurate? Did the mixing occur automatically upon deposit, for which a fee was taken immediately? Did the user have the option?

0 sats \ 0 replies \ @Bell_curve 25 Apr

How is this money laundering?

0 sats \ 0 replies \ @benjaminprescient 24 Apr

Code.... viruses are code. Are malicious viruses illegal?

0 sats \ 13 replies \ @DarthCoin 24 Apr

Could Have Serious Implications For All Wallets

No, you are wrong,, and I feel sorry that you as a lawyer do not know this aspect.

I will just ask you a simple question and please answer like a lawyer:

https://m.stacker.news/28051

48 sats \ 6 replies \ @siggy47 OP 24 Apr freebie

The U. S. Legal system has criminalized much activity that I personally don't consider a crime. Is it right? No. Can they put you in jail? Yes.

Maybe I'm paranoid, but I can see this as the beginning of a corporate attempt to co-opt bitcoin, and put an end to it's peer to peer use case. IMO, if they do that, there's nothing left. Believe me. I hope I am wrong.

154 sats \ 5 replies \ @DarthCoin 24 Apr

They put you in jail for one night. Not for long. But that is only if you are prepared to say the right words and be prepared with the right papers and questions / responses.

But yeah many people will just go along with the "justice system" without knowing that they are fucked from the beginning.

https://i.postimg.cc/1XTq5npw/darth-system-justice.jpg

0 sats \ 4 replies \ @nout 25 Apr

Do you have a tutorial for the right papers & questions/responses?

Fwiw they classify this under domestic terrorism.

https://m.stacker.news/28085

177 sats \ 2 replies \ @DarthCoin 25 Apr

You need to be well prepared. Did you read this post? #515857 Did you read my old guide about natural law and bitcoin? Inside are many links to how to do it.. https://darth-coin.github.io/general/natural-law-bitcoin-en.html

But yeah, people are reading only on the surface, not going deep to study the rabbit hole. Me and Lux were posting like crazy all days pills about all these aspects. Now you just ask for a "get free out of jail card"... is not working like that. If you do not know how the system works, just some few phrases said are not enough, they will always try to trick you if they see that you are not well prepared.

Yes, I can tell you in few steps what to do and say, but will not be enough, because your mind is not prepared for all the rest. You knowledge into these things is just on the surface.

Hints:

take control over your strawman (govID), using UCC-1 filling. Is literally creating a trust, where you, the living man is the beneficiary of the trust. The "paper man", the one in CAPITALS is the trustee, that you control it, not the gov anymore.
post your public notice somewhere online or in a newspaper, if in 20-30 days nobody is answering to your claim, that became a fact that nobody can rebut it anymore. In that public notice you declare your sovereignty and your trust.
never use anymore the govID, that is NOT YOU

100 sats \ 1 reply \ @nout 25 Apr

Nice, thank you! No I didn't read the posts, I'll check them out. I'm familiar with shell corps to try gaining individual privacy, so this sounds like something similar, but it gets deeper, which is great.

77 sats \ 0 replies \ @DarthCoin 25 Apr

Here you have also a selected list of deep explanations, https://www.bitchute.com/channel/sovereignman/ in the channel description you have more links to study

including a 5parts seminar about trusts. https://www.bitchute.com/video/KFsmRk5aO2TH/

20 sats \ 0 replies \ @DarthCoin 25 Apr

#518276

0 sats \ 5 replies \ @premitive1 24 Apr

If I break into your house and find your bitcoin keys and then leave, not having taken anything, only memorizing your keys, has any crime, aside from entering, been committed? If I go home and load your private keys into my own software, and move all the bitcoin you had in that wallet?

0 sats \ 0 replies \ @javier 24 Apr

Well, it's simple. You used my computer or opened my vault, which means you violated my private property. Then, you used my violated property to obtain information to further steal me. So now you have commited two crimes against me, and I am in my right to claim full reparations for both crimes.