Samourai Did Nothing Wrong, Self Custodial Tools Are Not Money Transmitters

An announcement was put out today by the Justice Department that Keonne Rodriguez and William Hill had been arrested and charged with operating Samourai Wallet, “an unlicensed money transmitting business” that executed “unlawful transactions.”

Fuck the Justice department, full stop. At no point did Samourai custody user funds, have control over user funds, and ESPECIALLY did not execute any transactions on behalf of the user. It is a completely self-custodial wallet in every way. They from day one were completely uncompromising in that with every feature they have ever implemented.

They are being charged with conspiracy to commit money laundering, with a maximum sentence of 20 years, and one count of conspiracy to operate an unlicensed money transmitting business, with a maximum sentence of five years.

This is literally insane.

Let’s look at some of the language used in the press release for the arrests:

“Samourai unlawfully combined multiple unique features to execute anonymous financial transactions valued at over $2 billion for its customers.”

What the fuck does that even mean? “Unlawfully combined multiple unique features” ? They wrote source code that juggles 1s and 0s around and puts them together in a certain arrangement? They wrote a computer program that just creates pieces of data on users’ own devices, their own property, and signs it with a cryptographic key before sending it off to the internet for other peoples’ computers to voluntarily download and look at it? Maybe forward some 1s and 0s to someone else’s computer?

That’s a first amendment protected right. Full stop. Writing and releasing source code is free speech. The entire absurd argument of “unlawfully combining unique features” is essentially boiling down to “you spoke wrongspeak.” That is not legal. They are literally implicitly stating that certain types of speech, or combinations of speech, are unlawful. That is insane.

“These private keys are not shared with Samourai employees, but Samourai operates a centralized server that, among other things, supervises and facilitates transactions between Samourai users and creates new BTC addresses used during the transactions.”

Samourai does not create addresses for users, their own wallets do. Full stop. Samourai’s servers have no part in generating addresses for users. That is a factually incorrect statement. As well, the framing of “supervises and facilitates” transactions is very intentionally framing. They ultimately have no control over the transaction construction process other than being a passive message passer. At no step in this process do they gain control over the transaction users construct, the ultimate destination of the transactions (which are to THEMSELVES) are entirely decided by users. The authorization of the transaction is approved solely and exclusively by the users themselves.

At no point in any step of the process of users constructing a transaction does Samourai gain any control over users’ funds, any influence over where those funds are spent, or ability to prevent those users’ funds from being spent wherever and whenever they want.

The press release goes on further to specifically single out Whirlpool and Richochet as the two features in question. Ricochet first of all being classified, or at least implied to be, a form of money laundering or some kind of illegal transaction structure is insane. Richochet is literally just a series of transactions in a chain sending money to yourself over and over.

It looks like this:

Literally every single wallet in existence for Bitcoin is capable of creating a chain of self spends like this. Every single one of them. You just keep sending your own Bitcoin to a new address in the wallet over and over. This is money laundering? This is illegal? Is spending my money to myself, making no transactions to any external entity, or interacting with any other party, illegal? Get fucked. That is absolutely patently insane. So are all wallet providers facilitating money laundering then? Is that the insane road they’re going to try to walk down setting precedent with this case?

Now Whirlpool, their coinjoin coordinator. It claims that Samourai’s server coordinates “batches of cryptocurrency exchanges” between groups of users. Incorrect, full stop. No one is sending any money to anyone else inside a Whirlpool coinjoin. Every user involved is sending their own money back to themselves. There is no transfer of funds from one user to another occurring. Full stop. Trying to paint this as facilitating users transferring funds between each other is technically incorrect, it is false. ALL coinjoins are users sending their own money back to themselves, i.e. self spends.

It’s funny how they didn’t mention STONEWALL or STONEWALL2x, purely peer-to-peer coinjoins that actually facilitate payments between users. I’m sure that the fact that Samourai had literally zero involvement in those transactions, being purely coordinated between users with no involvement of Samourai’s server. Twisting Whirlpool coinjoins and trying to frame them as actual transfer of funds is probably just a coincidence, not wildly distorting technical realities, given the fact that STONEWALL exists. They’re just confused.

In the actual indictment they also go on to claim that “Samourai”, with no distinction between the users wallets that Samourai themselves have no part in operating and the backend servers they do operate, “automatically mixes the outputs.” No. Users wallets have to be manually connected by the user to the backend coordinator, and after the user initiates and authorizes it to remix, the users software independently participates in the process of proposing pieces of transactions, and authorizing the signing of the resulting transaction if it fits the conditions the user authorized.

They also in the indictment claim Samourai “as a money transmitting business” had an obligation to apply KYC and AML regulations on their users. They are not a money transmitting business. Full stop. At no point do they take custody, or have control over or the capability to transact themselves unilaterally with users’ funds. To claim that they are a money transmitting business, and they have the obligation to collect and enforce KYC and AML regulations for their users, is to argue that every self-custodial wallet and service in this entire ecosystem falls under the auspices of money transmission regulations.

That is beyond insane, and flies completely in the face of all past clarification from FinCEN on this issue.

Samourai is not a money transmission business. Full stop. All they provide, in all of their services being listed in their indictment, is “delivery, communication, or network access services used by a money transmitter to support money transmission services;.” FinCEN in 2019 specifically and in completely unambiguous language clarified that exactly the types of services Samourai offered are not money transmitters.

Every aspect of this case framing their services and products as money transmission, in which they act as a money transmitter on behalf of others, is completely and utterly incoherent and out of alignment with the reality of how this technology works. It is an insidious and manipulative attempt to use them as an example to push the precedent that purely non-custodial tools and services fall under the umbrella of money transmission services, when the regulatory agency whose purview it is to handle these definitions and relevant regulations has explicitly clarified themselves they do not fall under that definition.

This entire case is absolute absurdity, and should be loudly and consistently called out as such. The precedent this can set going forward for all self-custodial tools is completely insane, and not something that can be allowed to happen. Twitter feud bullshit and old drama does not matter right now, the reality of the insane overreach the United States government does.

If you haven’t already grown up, now would be a good time to do so. The serious issues like this we are going to deal with moving forward into this cycle are infinitely more important than stupid Twitter drama. 

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