Software developer Michael Lewellen has formally filed his opening brief in the United States Court of Appeals for the Fifth Circuit, marking a pivotal moment in the ongoing legal battle over the classification of open-source software development under federal financial regulations. The filing asserts that independent developers face a credible and imminent threat of criminal prosecution under 18 U.S.C. § 1960, a statute governing unlicensed money transmission, and seeks a definitive ruling on whether the mere act of writing and publishing non-custodial code constitutes a regulated financial activity. Supported by the cryptocurrency policy advocate Coin Center, the case represents a direct challenge to the Department of Justice’s recent interpretative trends, which critics argue have expanded the definition of "money transmission" to include the publication of software that facilitates private transactions without ever taking control of user funds.
The litigation arises amidst a period of intense regulatory scrutiny within the digital asset sector. For several years, the Southern District of New York (SDNY) has pursued high-profile prosecutions against the developers of privacy-enhancing tools, most notably the Tornado Cash and Samourai Wallet protocols. These cases have sent shockwaves through the global developer community, creating what Lewellen and his legal counsel describe as a "chilling effect" that stifles innovation and compromises the constitutional rights of American citizens. By seeking a pre-enforcement judgment, Lewellen aims to secure legal certainty for developers who wish to build and maintain decentralised tools without the risk of facing felony charges and lengthy prison sentences.
The Statutory Framework: 18 U.S.C. § 1960 and the Definition of Transmission
At the heart of the dispute is 18 U.S.C. § 1960, a federal law that criminalizes the operation of an "unlicensed money transmitting business." Traditionally, this statute has been applied to entities that act as intermediaries, such as banks, currency exchanges, or traditional money transmitters like Western Union, which take physical or digital custody of a customer’s funds to move them from one location or person to another. Under the Bank Secrecy Act (BSA) and FinCEN regulations, a money transmitter is defined as an entity that "accepts" and "transmits" currency, funds, or other value that substitutes for currency.
However, the Lewellen brief argues that the executive branch has begun to untether the definition of money transmission from the requirement of custody. In recent indictments, federal prosecutors have suggested that providing the software architecture—the "rails" or smart contracts—that allows users to transmit funds to one another is sufficient to trigger the licensing requirements of § 1960. Lewellen’s crowdfunding software is designed to be non-custodial, meaning the developer never holds, touches, or directs the movement of the users’ assets. From a technical standpoint, the software functions as a set of instructions that users execute independently. Lewellen contends that if the government’s current logic holds, any individual who writes and shares code that interacts with financial value could be classified as a "money transmitter," effectively requiring every software engineer to obtain 50 state-level licenses and register with federal authorities.
Chronology of Enforcement and the "Chilling Effect"
The timeline leading to Lewellen’s appeal is defined by a series of aggressive enforcement actions that have redefined the boundaries of software development in the United States.
- August 2022: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a decentralized privacy protocol. This was the first time the U.S. government sanctioned a piece of autonomous software rather than a person or entity.
- August 2023: The Department of Justice unsealed an indictment against Tornado Cash co-founders Roman Storm and Roman Semenov, charging them with conspiracy to commit money laundering and operating an unlicensed money transmitting business. The indictment focused on their role in creating and maintaining the software.
- April 2024: Federal authorities arrested the founders of Samourai Wallet, Keonne Rodriguez and William Lonergan Hill. Similar to the Tornado Cash case, the government alleged that providing a non-custodial wallet and "mixing" service constituted unlicensed money transmission, despite the developers’ lack of control over user private keys.
- Late 2024 – Early 2025: A series of administrative memos and public statements from the Department of Justice attempted to clarify the government’s stance. Among these was the "Blanche memo," which suggested a more nuanced approach to non-custodial developers. However, the memo lacked binding legal authority and did not explicitly exempt software publishers from the threat of future prosecution.
- July 2026: Michael Lewellen files his opening brief in the Fifth Circuit, seeking a pre-enforcement judgment to clarify the limits of § 1960 and protect the rights of developers to publish open-source code.
This progression of events has created an environment where developers feel they must "bet the farm" to continue their work. The brief argues that the threat is not merely theoretical; it has already resulted in the removal of code repositories from platforms like GitHub and the departure of talented engineers from the United States to more regulatory-friendly jurisdictions.
Constitutional Arguments: Speech and Due Process
Lewellen’s challenge rests on two primary constitutional pillars: the First Amendment right to free speech and the Fifth Amendment right to due process.
The First Amendment argument draws heavily on the landmark 1990s case Bernstein v. U.S. Department of Justice, which established that computer source code is a form of speech protected by the Constitution. In that case, the court ruled that government restrictions on the publication of encryption software constituted a prior restraint on speech. Lewellen’s brief asserts that publishing non-custodial crowdfunding software is a communicative act—an expression of logic and mathematical instructions. By threatening to criminalize this publication under money transmission laws, the government is effectively regulating protected speech based on its functional capacity, a move that should be subject to strict judicial scrutiny.
Supporting this view, SEC Commissioner Hester Peirce has frequently noted that "publishing code is speech." The Lewellen brief argues that if the government wishes to regulate the use of tools, it must do so without criminalizing the act of creating and sharing the tools themselves.
The Fifth Amendment argument focuses on the "void for vagueness" doctrine and the right to due process. Under the U.S. legal system, individuals must be given fair notice of what conduct is prohibited. Lewellen contends that the current application of § 1960 to non-custodial software is so broad and ill-defined that an ordinary person cannot determine where "software development" ends and "money transmission" begins. The brief emphasizes that a society governed by the rule of law should not require citizens to wait for an indictment to learn that their peaceful professional activities were illegal.
Official Responses and the Administrative Stance
The Department of Justice has consistently maintained that the technological nature of a business does not exempt it from financial regulations. In previous filings related to the Tornado Cash and Samourai cases, the DOJ argued that the "functional reality" of the services provided—enabling the movement of funds while obscuring their origin—falls within the intent of the Bank Secrecy Act. Prosecutors have argued that developers who profit from or maintain such systems are not merely "publishing code" but are actively operating a financial enterprise.
While the current administration has signaled a desire to avoid stifling innovation, as evidenced by the direction of the Blanche memo, it has stopped short of providing the "binding interpretation" Lewellen seeks. The government’s refusal to admit that non-custodial software development is categorically not a crime remains the central point of contention. The brief dismisses the government’s reliance on "prosecutorial discretion" as an insufficient safeguard for liberty, quoting the principle that law-abiding citizens should not be left "at the mercy of noblesse oblige."
Broader Impact and Policy Implications
The outcome of Lewellen v. Department of Justice is expected to have far-reaching implications for the future of the digital economy and the privacy rights of Americans. If the Fifth Circuit rules in favor of Lewellen, it would establish a significant legal precedent protecting open-source developers from being classified as financial institutions. This would provide the necessary "certainty of law" for the continued development of decentralized finance (DeFi), privacy-preserving technologies, and peer-to-peer applications.
Conversely, a ruling in favor of the government could solidify a regulatory regime where any software developer whose code facilitates the movement of value must comply with the same rigorous and expensive requirements as a commercial bank. Critics argue this would lead to a "walled garden" approach to the internet, where only large, established corporations have the resources to publish financial software, effectively ending the era of grassroots open-source innovation in the financial sector.
Furthermore, the case touches on the fundamental right to privacy. Non-custodial tools are often the only way for users to maintain financial privacy in an increasingly transparent digital world. By targeting the developers of these tools, the government is indirectly restricting the ability of individuals to engage in private transactions. Coin Center’s involvement highlights the stakes for the broader public, framing the issue not just as a developer’s right to code, but as a citizen’s right to use technology to safeguard their personal information.
As the Fifth Circuit prepares to hear the case, the legal and tech communities are watching closely. The decision will likely determine whether the United States remains a hub for software innovation or whether the "nation of laws" will see its foundational principles of free speech and due process yield to the expansive mandates of financial surveillance. For Michael Lewellen and the developers he represents, the case is a necessary stand against the "promises of powerful men" in favor of the clarity and protection of the judicial system.
