The legal battle over the boundaries of software development and financial regulation has reached a critical juncture in the United States Court of Appeals for the Fifth Circuit. Michael Lewellen, an independent software developer, has officially filed his opening brief, marking a significant escalation in the fight to protect open-source contributors from being classified as unlicensed money transmitters. The case, which is being closely monitored by civil liberties advocates and the cryptocurrency industry, seeks a definitive ruling on whether the mere act of writing and publishing non-custodial code can trigger felony liability under federal law. Supported by the non-profit advocacy group Coin Center, Lewellen’s challenge arrives at a time when the Department of Justice (DOJ) has increasingly targeted privacy-preserving software through high-profile criminal prosecutions.
The Core Legal Challenge: Defining Money Transmission
At the heart of the litigation is 18 U.S.C. § 1960, a federal statute that criminalizes the operation of an "unlicensed money transmitting business." Traditionally, this law has been applied to entities that take physical or digital custody of client funds to facilitate transfers—businesses like Western Union, PayPal, or centralized cryptocurrency exchanges such as Coinbase. However, recent enforcement actions by the Southern District of New York (SDNY) have signaled a radical expansion of this definition.
Lewellen’s brief argues that the government’s current interpretation lacks clear boundaries, creating a "credible threat of prosecution" for developers who create tools that others might use for financial transactions, even if the developers themselves never handle, see, or control the assets involved. Lewellen, who developed a non-custodial crowdfunding tool, contends that he should not be required to obtain a money transmitter license—a process that involves onerous reporting requirements and millions of dollars in compliance costs—simply for publishing software.
The brief emphasizes that Lewellen’s software is "non-custodial," meaning the users retain sole control over their private keys and funds at all times. By seeking a pre-enforcement judgment, Lewellen is asking the court to clarify that the publication and maintenance of such tools do not constitute "money transmission" under the law.
A Chronology of Escalation: From Tornado Cash to Samourai Wallet
The urgency of Lewellen’s filing is rooted in a series of aggressive legal actions taken by the U.S. government over the past four years. To understand the "chilling effect" cited in the brief, one must look at the timeline of events that have reshaped the landscape for American developers:
- August 2022: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) takes the unprecedented step of sanctioning Tornado Cash, a decentralized privacy protocol. This marked the first time a piece of autonomous software code, rather than a person or entity, was added to the Specially Designated Nationals (SDN) list.
- August 2023: The DOJ indicts Roman Storm and Roman Semenov, the founders of Tornado Cash, charging them with conspiracy to commit money laundering and operating an unlicensed money transmitting business. The indictment suggests that because the developers "maintained" the software and provided a user interface, they were responsible for the illicit funds flowing through the protocol.
- April 2024: Federal authorities arrest Keonne Rodriguez and William Lonergan Hill, the founders of Samourai Wallet. Unlike Tornado Cash, which exists on a decentralized blockchain, Samourai was a mobile wallet application. The DOJ alleged that the developers were "money transmitters" because they offered "mixing" services to obfuscate transaction histories.
- Early 2026: Despite a change in administrative rhetoric and the issuance of the "Blanche memo"—a document suggesting a more restrained approach to non-custodial tech—the DOJ refuses to formally concede that software development alone is exempt from § 1960.
- July 2, 2026: Michael Lewellen files his opening brief in the Fifth Circuit, seeking a judicial shield against these expansive theories of liability.
Constitutional Stakes: Speech, Privacy, and Due Process
The brief positions the act of coding as a fundamental exercise of First Amendment rights. This argument draws on a long history of American jurisprudence, most notably the "Crypto Wars" of the 1990s. In cases like Bernstein v. Department of Justice, courts ruled that source code is a form of expression protected by the Constitution.
Lewellen’s legal team argues that if the government can require a license to publish code, it is effectively imposing a "prior restraint" on speech. This would not only stifle innovation in the blockchain sector but could set a precedent for any software that facilitates communication or data transfer. As SEC Commissioner Hester Peirce has noted in various dissents and public statements, "Publishing code is speech," and treating it as a regulated financial service threatens the very foundation of open-source collaboration.
Furthermore, the brief raises Fifth Amendment concerns regarding due process. The "void for vagueness" doctrine asserts that a law must be clear enough for an ordinary person to understand what conduct is prohibited. Lewellen argues that the current application of § 1960 is so unpredictable that developers are forced to "bet the farm"—risking decades in prison—just to participate in the digital economy.
Supporting Data and the "Chilling Effect"
The impact of this legal uncertainty is not merely theoretical; it is reflected in the tangible withdrawal of developers and capital from the United States. According to data compiled by industry analysts and advocacy groups:
- Developer Migration: Between 2022 and 2025, the percentage of open-source blockchain developers based in North America fell by an estimated 14%, with many moving to jurisdictions like Switzerland, Singapore, or the United Arab Emirates, where regulatory frameworks for non-custodial software are more clearly defined.
- Project Shutdowns: Following the Samourai Wallet arrests, at least six major privacy-focused projects announced they would cease operations or geofence U.S. users to avoid the risk of prosecution under unlicensed money transmission laws.
- Compliance Costs: For a small developer or startup, the cost of obtaining money transmitter licenses in all 50 U.S. states can exceed $2 million in initial legal and bonding fees, with annual maintenance costs reaching $500,000. For a non-custodial project that generates no revenue from user funds, these costs are prohibitive.
Lewellen’s brief highlights that these barriers do not just stop "bad actors"; they prevent law-abiding citizens from building tools that enhance the privacy and security of millions of Americans.
Official Responses and the "Blanche Memo"
The government’s defense has largely rested on the idea of "prosecutorial discretion." In late 2025 and early 2026, high-ranking officials within the administration released guidelines, colloquially known as the "Blanche memo," which suggested that the DOJ would prioritize cases involving actual custody of funds or clear intent to facilitate crime.
However, Lewellen’s brief dismisses these promises as insufficient. The brief states that law-abiding citizens should not have to rely on "mere prosecutorial discretion," leaving their liberty "at the mercy of noblesse oblige." Because the Blanche memo is a policy document and not a binding legal interpretation, a future administration or a different US Attorney could easily revert to the more aggressive stance seen in the SDNY prosecutions.
The DOJ has, to date, refused to issue a formal "no-action letter" or a binding rule stating that non-custodial software development is outside the scope of § 1960. This refusal is the primary catalyst for Lewellen’s demand for a court ruling.
Broader Impact and Implications for the Future
The outcome of Lewellen v. Department of Justice (or the corresponding federal defendants) will likely define the future of the American tech industry. If the Fifth Circuit rules in favor of Lewellen, it would create a vital "safe harbor" for developers. It would affirm that writing code is a protected activity and that the government cannot use financial regulations to circumvent the First Amendment.
Conversely, a ruling in favor of the government could effectively end open-source financial innovation within the United States. If every developer of a decentralized protocol or a private wallet is deemed a "money transmitter," the decentralized nature of the internet would be compromised. Every node operator, every interface designer, and every smart contract author could theoretically be held liable for the actions of anonymous users.
Beyond cryptocurrency, this case touches on the "Right to Privacy" in the digital age. As more of our lives move online, the tools that allow for private communication and financial autonomy become essential. If the creators of these tools are treated as criminals, the average citizen loses the ability to protect their personal data from both state and non-state actors.
Conclusion: A Nation of Laws, Not of Men
As the Fifth Circuit prepares to hear oral arguments, the words of John Adams—that we are a "nation of laws, not of men"—resonate throughout the legal community. Michael Lewellen’s fight is not just about a crowdfunding app; it is a defense of the principle that the law must be predictable, transparent, and respectful of constitutional boundaries.
For the thousands of developers currently working in the open-source space, the certainty of a judicial ruling is the only thing that can dissipate the "chilling effect" that has hovered over the industry since 2022. Whether the court will choose to protect the freedom to innovate or allow the expansion of the regulatory state remains the most consequential question facing the American judiciary in 2026.
