The co-founders of the privacy-oriented Bitcoin wallet Samourai Wallet, Keonne Rodriguez and William Lonergan Hill, were sentenced to four and five years in prison respectively. This ruling sets a major precedent as privacy-enhancing technologies could be back on the agenda in the cryptocurrency world.

Rodriguez and Hill were convicted for operating an unlicensed money-transmitting business and for enabling transactions tied to illicit profits, according to the U.S. Department of Justice (DOJ). Prosecutors maintained that Samourai’s CoinJoin mixing feature obscured the flow of illegal funds, despite the non-custodial nature of the wallet.

“The sentences the defendants received send a clear message that laundering known criminal proceeds—regardless of the technology used or whether the proceeds are in the form of fiat or cryptocurrency — will face serious consequences,” said U.S. Attorney Nicolas Roos.

This sentencing comes after their arrest in April 2024 and subsequent release on a $1 million bond after pleading not guilty. By late July, they indicated a shift to a guilty plea prior to their recent sentencing. The closure of Samourai has spurred the development of an open-source alternative named Ashigaru.

The Control-Based Argument for Money Transmission

Though Samourai had no control over the Bitcoin being mixed, it managed the mixing through the Whirlpool CoinJoin operation. The judge decided this constituted a money transmission service. Court documents revealed that “all Whirlpool transactions are coordinated by Samourai’s server,” which also broadcasted “Ricochet” transactions onto the Bitcoin network.

According to prosecutors, this activity meant they were transferring money on behalf of users without the necessary license from the Financial Crimes Enforcement Network (FinCEN).

Current homepage of the seized Samourai Wallet website. Source: Samourai Wallet

Related: Chat Control stumbles again as EU retreats from mandatory scanning

Non-Custodial is Not Enough; True Decentralization is Essential

The prosecution of Samourai Wallet’s founders is yet another instance illustrating the need for total decentralization to avoid prosecution in implementing crypto privacy methods, similar to the Tornado Cash case. The DOJ highlighted that the co-founders had a foundational role in creating Tornado Cash and profited substantially from it.

The DOJ pointed out that they failed to adopt Know Your Customer (KYC) and Anti-Money Laundering (AML) measures as mandated for money transmitting firms. This issue continues to spark legal debates, with the crypto community assertively asserting their right to privacy.

In October, Tornado Cash co-founder Roman Storm raised concerns to DeFi developers, questioning how they can be assured they won’t be prosecuted for operating a non-custodial protocol.

“Our perspective is that just coding, without any malicious intention, is not a crime,” remarked Matthew Galeotti, Acting Assistant Attorney General for the DOJ.

Both Sides Score Points

In January, advocates for privacy celebrated when a U.S. court annulled the sanctions against Tornado Cash. The ruling stated that the smart contracts utilized by the protocol weren’t property, hence could not be restricted under the International Emergency Economic Powers Act. The Office of Foreign Assets Control (OFAC) was noted as having exceeded its authority.

U.S. Judge Don Willett expressed understanding of the negative impacts of uncontrollable technology falling beyond OFAC’s jurisdiction:

“We decline the Department’s invitation to judicial lawmaking… Legislating is Congress’s job—and Congress’s alone.”

In the Samourai case, Storm faced similar charges and pleaded not guilty, maintaining his intent to not facilitate the misuse of the crypto mixer was not proven, which is critical for guilt.

Related: Privacy coins are not radical; surveillance money is