Why Samourai Wallet Is in Hot Water with DOJ

• The founders of Samourai Wallet are facing criminal charges with the U.S. Department of Justice (DOJ).
• Prosecutors have restricted access to the wallet’s services.
• The DOJ Samourai Wallet crackdown has ignited a debate over the regulatory attack on financial privacy.

The pseudonymous nature of the crypto industry, while offering significant privacy benefits, has often raised concerns due to potential misuse by illicit actors to execute unlawful activity without drawing regulatory attention. One popular tool in this regard is crypto mixers, which blend transaction histories to obscure their origins, making them harder to trace.

The controversial nature of these mixers has often placed them at the core of regulatory scrutiny. In August 2022, the United States authorities ignited legal proceedings against popular crypto mixer Tornado Cash , alleging its facilitation of illicit transactions for corrupt entities.

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While the legal discourse persists, the regulatory watchdogs have spotlighted a new target for engaging in similar activities.

DOJ’s Action Against Samourai Wallet

In a press release dated Wednesday, April 24, the U.S. Attorney’s Office of the Southern District of New York announced the indictment of Keonne Rodriguez and William Lonergan Hill, the Chief Executive and Technology Officers of Bitcoin mixer Samourai Wallet.

Central to the indictment are individual charges of conspiracy to commit money laundering and the operation of an unlicensed money-transmitting business, leveled following a year-long investigation into their alleged involvement in facilitating unlawful transactions.

Asserting the gravity of Rodriguez’s and Hill’s violations, prosecutors emphasized that the Bitcoin mixer, over a span of 10 years, facilitated more than $100 million in money laundering transactions linked with dark webs such as Silk Road and Hydra Market, alongside other illegal activities, totaling $1.7 billion.

“$2 billion in transactions with an unlicensed money transmitter means $2 billion flowed without any oversight, from whomever to wherever.  Because of the company’s disregard for regulation,” stated the release.

The protocol’s servers and official domain have been seized by the DOJ, and the mobile application is expected to be removed from the Google Play Store in the United States. But, how did the wallet raise red flags for the justice department?

What Samourai Wallet Did: A“Safe Haven” for Crime?

Spotlighted in the press release are two top features of the Rodriguez and Hill-owned Samourai Wallet, ‘Ricochet’ and ‘Whirlpool’, which prosecutors described as “intended to assist” criminals to conceal the source of their proceeds.

Prosecutors emphasized that since the launch of the two services in 2017 and 2019, respectively, over 80,000 BTC, valued at over $2 billion based on BTC-USD conversion rates at the time of each transaction, have passed through Samourai, for which it earned an estimated $4.5 million over the same period.

The founders’ social media relations over the past years were also a focal point of discussion. A damning post on the protocol’s official X account dating back to June 30, 2023, was flagged by prosecutors as evidence of the mixer’s violations.

Authorities stated that Samourai Wallet openly promoted its services to criminals as a “safe haven” with “premium privacy” for mixing transactions, including illicit activity, inviting them to circumvent sanctions. The DOJ further added that despite Europol flagging Samourai years back as a “top threat” to the ability of law enforcement to trace criminal proceeds, co-founder Hill reiterated the firm’s unwillingness to alter its practices.

“Europol also highlighted Samourai Wallet as an emerging top threat in the same article. Do you see us shitting in our pants?” he stated.

Both Rodriguez and Hill have been arrested by authorities at press time, and are expected to face legal proceedings with immediate effect. While Hill was arrested outside of U.S. soil, prosecutors asserted that the CTO will be extradited to the United States to face trial. 

Despite the weight of the accusations, the charges have raised questions and concerns among the platform’s supporters.

Is the DOJ Samourai Wallet Crackdown a War Against Privacy?

The DOJ’s charges against Samourai Wallet mirror its past enforcement actions against mixing platforms, sparking concerns about ongoing efforts to curb financial privacy in the industry. According to X user Yan, the actions against the wallet are yet another demonstration of the government’s overreach that should be fought. 

While Yan condemned Samourai Wallet’s method of service promotion and uncensored relations, he insisted that its offerings are legitimate, and the alleged criminal aid is “a small fraction of mixing use.”

Echoing the sentiment, Edward Snowden, renowned for his open pro-privacy advocacy in previous cases such as the DOJ-Tornado cash lawsuit, asserted that the charges against the executives highlight its ongoing pattern of preying on developers and facilitators of financial privacy in the industry. 

“ The Department of "Justice" has once again criminalized the developers of an app that restores financial privacy. The way to fix this is to make money private by default. Privacy must never be "exceptional," or they will make it criminal,” he stated. 

Keonne Rodriguez and William Lonergan Hill each face a maximum potential sentence of up to 25 years behind bars.

On the Flipside

• While the DOJ’s charges carry weight, the Samourai Wallet founders are presumed innocent until proven guilty.
• The brewing legal battle could result in the complete end of business for the crypto mixer.
• Prosecutors are currently seeking a 3-year sentence for former Binance CEO Changpeng Zhao , who was convicted of a similar violation of anti-money laundering charges. 

Why This Matters

The indictment of the Samourai Wallet founders by the DOJ marks the commencement of legal actions against the platform, potentially fated for a lengthy tussle and major consequences if tried similarly to past cases. Additionally, despite opposition from market participants on industry privacy concerns, the abuse of crypto mixers among malicious actors has grown over the years and legal actions such as this could aid in establishing a balance between privacy and preventing misuse.

Discover more about the DOJ’s ongoing regulatory cleanse here:
KuCoin Faces Withdrawal Panic as DOJ Files Criminal Charges  

Like the US, enforcement actions are tightening in Thailand. Read more:
Thailand SEC Tightens Crypto Crackdown to Target Cybercrime