Coin Center Questions Tornado Cash Indictments in Light of FinCEN Guidance

Two former developers of Tornado Cash, Roman Storm and Roman Semenov, have been indicted on charges including conspiracy to operate an unlicensed money-transmitting business. The indictment, issued by the United States Office of Foreign Asset Control (OFAC) on August 23, has raised questions in the crypto community, particularly regarding its alignment with existing Financial Crimes Enforcement Network (FinCEN) guidance.

Coin Center, a crypto advocacy group, has expressed concerns over the indictment, suggesting that the charges may not align with the definitions and guidelines provided by FinCEN. Peter Van Valkenburgh, Coin Center’s research director, highlighted that the indictment’s primary claim against the defendants is that they “engaged in the business of transferring funds on behalf of the public” without registering with FinCEN.

However, Valkenburgh points to the 2019 FinCEN Virtual Currency Guidance which states, “An anonymizing software provider is not a money transmitter.” This guidance further elaborates that those who use such software for their transactions could be considered either users or money transmitters, depending on the transaction’s purpose. Valkenburgh argues that while Tornado Cash’s tools might have facilitated users in transmitting money using the protocol’s smart contracts, this does not necessarily categorize the developers as money transmitters.

The indictment also alleges that Storm and Semenov had “complete control” over Tornado Cash’s smart contracts. Addressing this, Valkenburgh emphasized the variable nature of Ethereum smart contracts, where control can range from none to total. He stated that the degree of control is a crucial factor in determining if one is involved in money transmission. The indictment, according to Valkenburgh, does not provide clear details on the nature of the defendants’ control over the smart contracts.

Furthermore, the OFAC indictment suggests that by transferring funds on behalf of the public, Storm and Semenov were operating an unlicensed money transmission service and should have registered with FinCEN. On August 23, Semenov was added to OFAC’s list of Specially Designated Nationals and Blocked Persons, while Storm was arrested in Washington state.

This case has broader implications for the crypto community. Valkenburgh believes that the outcome could significantly influence the legal rights of U.S. citizens to develop and publish software in the future.

In related news, another Tornado Cash founder, Alexey Pertsev, was detained by Dutch authorities in August 2022 and subsequently released in late April.

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Coin Center Sues IRS For Unconstitutional Tax Reporting Rules

Coin Center, a Washington DC-based Not-for-Profit organization with a focus on crypto policies, has filed a lawsuit against the United States Treasury and the Internal Revenue Service (IRS) for a tax reporting requirement it wants to pass into law.


Coin Center said the reporting requirement as detailed in the “Infrastructure Investment and Jobs Act” will require users to report transactions of $10,000 and above. The Bill demands the receiver of the funds to share the name of the sender, their date of birth, and their Social Security Number (SSN). According to the Coin Center lawsuit:

“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans,” the organization said on its website, adding that “uncover a detailed picture of a person’s personal activities, including intimate and expressive activities far beyond the immediate scope of the mandate. The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”

Coin Center is advocating that every American has the right to conduct whatever transactions they wish to conduct within a protected level of privacy that is designed.

Coin Center also noted that its “mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.”

The United States government has been doing all it can to provide long-sought oversight over the digital currency ecosystem and one of the most proactive ways it is doing this is by expanding the existing taxation provisions. While the Coin Center lawsuit is still very new, it is an indication that the crypto industry might be more resistant to whatever regulation they deem unfavourable.

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Treasury Pushes Global Crypto Reporting Rules in $3.5T Budget Bill

Key Takeaways

  • The U.S. Treasury is pushing for new crypto reporting, requiring U.S. exchanges to share data on non-U.S. customers.
  • The Biden administration wants to exchange this data for information on U.S. residents’ crypto accounts in other countries.
  • The new proposal comes only weeks after the Senate approved new tax reporting requirements for crypto brokers in the $1 trillion Infrastructure Bill.

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According to a report citing an anonymous administration official published Monday, the U.S. Treasury is pushing for new tax reporting requirements for crypto exchanges in the upcoming $3.5 trillion budget reconciliation bill.

Treasury Wants Data on Offshore Crypto Accounts

The U.S. Treasury reportedly wants U.S.-based crypto exchanges to report data on non-U.S. customers. 

The purpose of the provisions would be to gather information on foreign crypto account holders so that the U.S. could automatically share this data with other countries in exchange for information on U.S taxpayers trading cryptocurrencies in other countries. 

The Biden administration hopes to leverage the new tax reporting requirements to enforce tax compliance on U.S. crypto investors. The administration suspects that U.S. taxpayers are setting up offshore corporate entities in order to trade cryptocurrencies while avoiding paying taxes. To stop this, the U.S. needs information from other countries, which it can only get if it comes up with its own data to trade.

Furthermore, the treasury reportedly wants to expand the information reporting requirements to the “beneficial owners” of the legal entities set up by foreign account holders to trade cryptocurrencies. A beneficial owner is a legal term for natural persons that enjoy certain ownership benefits even though the legal title of the property belongs to another person. In the U.S., this includes individuals who own at least a 25% equity stake in the legal entity or those with “significant responsibility to control, manage, or direct” the said entity.

According to Treasury’s Green Book, third-party information reporting is critical in combating tax avoidance:

SIMETRI Research

“In order to ensure that the United States is able to benefit from a global automatic exchange of information framework with respect to offshore crypto assets and receive information about U.S. beneficial owners it is essential that United States reciprocally provide information on foreign beneficial owners of certain entities transacting in crypto assets with U.S. brokers.”

Commenting on the latest news, Jerry Brito, CEO of crypto think tank Coin Center, tweeted, “We don’t object to crypto tax reporting requirements (indeed we’ve asked for reporting guidance for years), we object to last-minute additions to ‘must-pass’ bills outside regular order and with little or no public input.”

Earlier this month, Coin Center and the Blockchain Association, among others, lobbied the Senate against the last-minute provisions Secretary Yellen reportedly pushed to include in the $1 trillion Infrastructure Bill. The industry-led effort failed to amend the bill, which includes provisions that make crypto brokers—a too broadly defined term according to industry experts—responsible for sharing tax information with the IRS.

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.

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2 Senators introduce pro-crypto amendment to infrastructure bill; industry says it’s not enough

United States senators Mark Warner and Kyrsten Sinema, both Democrats from Virginia and Arizona, respectively, have introduced a new amendment to the infrastructure bill that would lessen the burden on cryptocurrency tax reporting for miners and wallet providers. 

As Perianne Boring reported Saturday afternoon, the senators are endorsing an amendment that would exclude cryptocurrency miners and hardware and software wallet providers from being subject to new tax reporting provisions. The amendment would broaden an earlier update proposed by the same lawmakers, along with Ohio Republican Rob Portman.

The current version of the bill considers these entities to be “brokers” that facilitate the transfer of cryptocurrencies between users. If these entities are indeed classified as brokers, they would have to monitor and track user transactions despite them not being actual customers. Opponents of the proposed law say it would be nearly impossible for miners to fulfill these obligations adequately.

The cryptocurrency community has, with few exceptions, banded together to form a united front against the proposed infrastructure bill. Many influencers have urged their followers to contact their state and local representatives to voice their opposition to the bill. In their view, the new tax reporting requirements are unworkable for cryptocurrency miners, wallet providers and protocol developers, which means their implementation would stifle innovation and adoption for the nascent industry.

Related: Treasury Secretary reportedly against amending crypto language in infrastructure bill

Twitter CEO Jack Dorsey opposed a previous iteration of the bill proposed by Mark Warner, arguing that the “amendment makes it worse, especially for open source developers.”

Jerry Brito, who heads Coin Center, a D.C.-based crypto think tank, wrote a detailed thread explaining two competing amendments and how they would impact the digital asset market. He contrasted Warner’s initial amendment, which he described as a “misguided [attempt] to pick technological winners and losers,” with an alternative proposal put forth by the bipartisan pro-crypto group that includes Ron Wyden, Cynthia Lummis and Pat Toomey.

Regarding Warner’s revised proposal submitted on Saturday, Brito said it’s “still not as good as the Wyden-Lummis-Tomey amendment,” which excludes protocol developers from the tax reporting requirement.

Barring any further delays, the Senate is expected to vote on the bill late Saturday or on Sunday.

Related: SEC claims first enforcement action in $30M fraud case involving DeFi project