When miners descended into coal mines, they carried a caged canary with them. The canary's sensitivity to toxic gases, especially carbon monoxide, served as an early warning system. If the canary died, it indicated the presence of dangerous gases, signaling miners to evacuate.
On May 14, 2024, Alexey Pertsev, a software developer who created an open-source tool to preserve online privacy, was convicted of money laundering and sentenced to over five years in prison by a Dutch court.
The court's decision stated: "The tool developed by the suspect and his co-authors combines maximum anonymity and optimal concealment techniques with a serious lack of identification functionalities. Therefore, the tool cannot be characterized as a legitimate tool that has been inadvertently used by criminals. By its nature and operation, the tool is specifically intended for criminals."
This ruling implies that seeking to preserve one's privacy is, at best, complicit in a crime and, at worst, proof of criminality. A significant threshold has been crossed.
Unfortunately, this case will likely garner little empathy and interest. Pertsev worked in the crypto industry, and the tool he developed, Tornado Cash, was designed to preserve transaction confidentiality.
However, dismissing this as an isolated incident affecting a niche industry would be a grave mistake.
This is our canary in the coal mine.
The canary has stopped singing and is dying. If we do not react, we risk losing our freedoms. Cryptos serve as an early and glaring indicator of an insidious phenomenon that has been eroding our liberal democracies for about thirty years and is reaching a critical point.
Despite the lack of evidence supporting their effectiveness, financial surveillance measures are regularly reinforced, defying democratic principles such as the primacy of secrecy, freedom as a norm, the proportionality of rights limitations, technological neutrality, and the presumption of innocence. Preemptive control prior to any offense becomes the norm, law enforcement becomes selective and arbitrary, bank account closures resemble censorship and financial suffocation, and property rights are reduced to a mere shadow.
The fight against money laundering and terrorist financing has degenerated into collective hysteria worthy of authoritarian or even totalitarian regimes, to the point of criminalizing a fundamental and constitutional right: privacy. The famous American computer engineer Phil Zimmermann warned us in 1991: "If privacy is outlawed, only outlaws will have privacy."
Far from being a crypto issue, this shift away from liberal democracy concerns everyone. There are numerous examples in regimes known for their democracy, spanning from India to the United Kingdom, and from Canada to France.
Less than a year ago, the arrest of the Tornado Cash developers caused significant concern. However, the scope of the case, limited to the crypto world and perceived as a haven for terrorists and money launderers, quickly confined the indignation to a small group of insiders.
In April 2024, American and European public authorities, emboldened by this success, continued to move forward in a worrying direction.
Several events occurred almost simultaneously. The FBI, in cooperation with the IRS and with the assistance of European authorities, arrested the developers of the Bitcoin wallet Samourai Wallet. Their crime was allegedly "conspiring to launder money" and "operating an unlicensed money transfer business." They face 20 years' imprisonment for the first charge and 5 years for the second. For context, the maximum irreducible life sentence in France is 30 years.
Following this, the FBI issued a notice urging all Americans not to use "money transmitting businesses" that do not collect their identity and are not registered. The FBI continued by threatening to freeze all funds that had been mixed with funds obtained through illegal means.
To understand the absurdity of such an announcement, let's transpose this reasoning into the physical world and highlight two major issues.
First, the accusation of operating an unlicensed money transfer business. Samourai Wallet provides Bitcoin wallets with enhanced transaction privacy. It does not operate transactions on behalf of its clients; it provides the wallet software. In the physical world, their equivalent would be a leather craftsman who crafts leather wallets enabling their users to store cash. He facilitates cash management but has no say in how the wallet owners spend their cash.
Here, U.S. federal services conflate and lump together a large bank that operates transactions on behalf of its clients and a leather craftsman, holding the latter responsible for how his clients use their cash.
How far can we go with this line of reasoning? To ATMs? To the people at the Central Bank who print these bills? To the lumberjacks who produce the wood used for the paper of the bills?
Similarly, should we hold a carpenter responsible for what his clients decide to put in the furniture they make? Or an architect if the house they build ends up being used for drug trafficking?
It quickly becomes apparent that this conflation is completely absurd. A wallet creator is not responsible for what the wallet owner decides to do with the money stored in it. Being part of the cash or cash storage value chain should in no way imply responsibility for its final use, as there is no limit to this reasoning.
This question was actually raised 20 years ago regarding peer-to-peer exchanges, which allow multiple people to exchange information directly in a decentralized manner. This communication protocol and the software that enable it are sometimes used to commit offenses, particularly against intellectual property rights. However, despite attempts to criminalize the tool itself, European and American courts have ruled in favor of technological neutrality, stating that the software in question allows both legal and illegal exchanges and that their providers are not responsible for the use made by third parties. The case law then focused on the responsibility of each individual involved in a potentially illegal activity, acquitting some individuals due to lack of evidence of their criminal intent. These judicial solutions align with the normal exercise of fundamental rights.
The second issue lies in the threat of fund blocking.
Freezing any money mixed with funds obtained through illegal means would be equivalent to arresting anyone whose bills, whether in their leather wallet or pocket, have passed through the wrong hands.
In 2009, a university study covered by CNN showed that 90% of American dollar bills carry traces of cocaine, and up to 100% in some major cities. This helps us better understand the absurdity of the FBI's threat: almost all the cash in the world has already passed through the wrong hands. Should all cash holders be imprisoned? Of course not.
Following these absurd coercive actions, on April 26, 2024, the United States Attorney for the Southern District of New York published the government's rationale against Roman Storm, the lead developer of the privacy software Tornado Cash. The author insisted on considering Tornado Cash as a money transmitting business.
According to this argument, "the definition of 'money transmitting' in Section 1960 does not require the money transmitter to have control of the funds being transferred. [...] For instance, a USB cable transfers data from one device to another [...]."
A very broad definition of a money transmitting business that would even include USB cables, according to their own admission. At this rate, the question will soon become, who is not a money transmitter?
Here, the DOJ (Department of Justice) is so ambitious that it goes against the guidelines provided by FinCen (Financial Crime Enforcement Network, a bureau of the U.S. Treasury Department). In other words, the U.S. government does not agree with itself, which indicates a certain uneasiness.
In 2013, FinCen explained that software developers were not money transmitters: "The production and distribution of software, in and of itself, does not constitute acceptance and transmission of value, even if the purpose of the software is to facilitate the sale of virtual currency."
In 2019, following an inquiry regarding certain programmable features on Bitcoin (Time-locked and multi-signature), FinCen reiterated that the partial control that could be exercised by wallet developers was not sufficient to qualify them as money transmitters: "The person participating in the transaction to provide additional validation at the request of the owner does not have totally independent control over the value."
Beyond the opportunistic qualifications of various parties and to return more simply to the way the law should be applied in a liberal democracy, let's recall that cryptocurrency transfers are transfers of electronic communications according to the definition provided by European Union law.
Moreover, cryptocurrencies like Bitcoin or Ethereum allow for the exchange of communications that can be qualified as correspondences (the possibilities of exchange are not limited to monetary units). Electronic communications are protected by the right to privacy and personal data protection, and a limitation such as lifting confidentiality or blocking can only be justified if it is necessary for the effective pursuit of a defined objective, in a strictly proportionate manner, particularly in the case of a proven offense and personally committed by the individual whose communication is limited.
The Court of Justice of the European Union has also ruled in this sense, considering that the systematic analysis of communications, even when possible, infringes on the fundamental right to the protection of users' personal data, in violation of the Charter of Fundamental Rights of the European Union. The Court specifies that an injunction to block communications that does not distinguish "between illegal and legal content [...] could result in the blocking of communications with legal content and thus infringe on the freedom of expression and communication." Regarding cryptocurrency transfers, we can also invoke an infringement on the right to property.
It is therefore inconceivable, in a liberal democracy, to ask a private actor to block transactions or other types of communications without being certain of their illegality.
We can note another convenient schizophrenia on the part of the American authorities, which Lyn Alden aptly summarizes by referring to "Schrodinger's Currency": Bitcoin is considered as a currency only when it allows for the prosecution of individuals. The rest of the time, it is a speculative tool to which this qualification is denied. Indeed, to apply the definition of money transmitter, it is necessary to consider that what is being transmitted (
Bitcoin, in this case) is money. In this case, the U.S. government prefers to forget that the CFTC (Commodity Futures Trading Commission), which regulates commodity futures markets, considers Bitcoin to be a commodity.
While the developments against Samourai Wallet may have worried insiders, the general public remained indifferent. Following the revelations about Tornado Cash, some raised an eyebrow, but the broad masses remained largely unconcerned. While suspicions of terrorist financing could have made people overlook some points of law, there is still no mass movement.
It will undoubtedly take the example of Ledger, a French company based in Paris, to understand that financial surveillance threatens our democracies, including in their very core.
For several years, and especially in 2023 and 2024, European authorities have increasingly required companies to participate in police and judicial actions in an unprecedented manner. This trend concerns both cryptocurrency companies and traditional companies. Unfortunately, it also affects Ledger.
As a reminder, Ledger is the global leader in hardware wallets, with over 3 million units sold. These USB keys securely store cryptographic keys, i.e., access to cryptocurrencies. This makes them similar to traditional wallets.
Following the measures of the U.S. government, the situation of Ledger is alarming. Some testimonies mention significant collaboration between Ledger and the FBI to track certain accounts, which suggests that Ledger has passed control of their tools to the American government, making them unreliable. Others mention efforts by Ledger to preserve access to tools necessary for justice, which would suggest a desire to comply with democratic principles.
Since 2019, FinCen has placed Ledger on the list of companies subject to the Bank Secrecy Act, suggesting a responsibility of the company regarding how their tools are used by their clients. Similar decisions have been made by the Bank of England and the French Prudential Supervision and Resolution Authority (ACPR). In essence, companies like Ledger must track and reveal the names and addresses of their clients to fight money laundering and terrorist financing.
It is clear that such measures create a threat to fundamental freedoms, including the right to privacy, and highlight a trend towards the criminalization of basic privacy tools. The example of Ledger shows that even companies respected and trusted by the general public are not safe from this.
To understand the full extent of this phenomenon, let's recall the changes in the legislative and regulatory landscape regarding financial surveillance.
Initially, the international community focused on combating money laundering and terrorist financing by imposing various rules on financial institutions. These rules aimed to ensure that financial institutions did not knowingly or unknowingly assist in these illegal activities. The main instruments were the FATF (Financial Action Task Force) recommendations and the EU's Anti-Money Laundering Directives.
Over time, the rules have become increasingly stringent and intrusive. The concept of "Know Your Customer" (KYC) has become mandatory, requiring financial institutions to collect and verify their clients' identities. However, the effectiveness of these measures remains unproven. In 2022, Europol revealed that 98.9% of criminal profits in Europe go undetected, highlighting the inefficacy of the current system.
Moreover, these measures have led to the creation of vast amounts of personal data, often stored insecurely, posing significant risks to privacy and security. The potential for abuse and misuse of this data by both public and private actors is enormous.
The broadening of the definition of financial institutions to include crypto companies and the imposition of the same stringent rules on them has further complicated the situation. As we have seen, these measures criminalize tools designed to preserve privacy, thus threatening fundamental freedoms.
The cases of Alexey Pertsev, Samourai Wallet, and Ledger illustrate a worrying trend towards the criminalization of privacy tools and the erosion of fundamental freedoms in the name of financial surveillance. This trend, if left unchecked, poses a grave threat to our democracies.
It is crucial to recognize the importance of privacy in a democratic society and to resist measures that infringe on this fundamental right. The fight against money laundering and terrorist financing should not come at the expense of basic freedoms. There must be a balance between security and liberty, and it is the duty of citizens and policymakers to ensure that this balance is maintained.
The canary in the coal mine has stopped singing. It is time for us to act before it is too late.
