Samourai Wallet's co-founders have all fallen! Sentenced consecutively within two weeks, the privacy revolution is coming to an end.

William Lonergan Hill, co-founder of Samourai Wallet, was sentenced to four years in prison for operating a Crypto Assets mixing service. Prosecutors stated that the service helped criminals “launder millions of dollars in black money.” He was sentenced on Wednesday in the U.S. District Court for the Southern District of New York, about two weeks after his former colleague Keonne Rodriguez was sentenced.

Samourai Wallet co-founders plead guilty and are sentenced within two weeks

(Source: U.S. Department of Justice)

William Lonergan Hill was sentenced on Wednesday in the U.S. District Court for the Southern District of New York. About two weeks ago, his former colleague Keon Rodriguez was also sentenced to a maximum of five years in the same court. Rodriguez served as the CEO of Samourai, while Hill was the Chief Technology Officer. After initially denying the charges last year, both pleaded guilty in July this year. This rapid pace of sentencing demonstrates the U.S. Department of Justice's zero-tolerance stance on Crypto Assets mixing services.

Samourai Wallet is a Bitcoin wallet application focused on privacy, providing mixing services to enhance transaction privacy. The operation of mixing services involves combining Bitcoin from multiple users, making it difficult to trace the source and destination of individual transactions. This technology is regarded as a legitimate tool for privacy protection within the Crypto Assets community, but in the eyes of law enforcement, it has become a powerful tool for criminals to launder money.

“The judgment received by the defendant sends a clear message that money laundering—regardless of the technology used, and whether the proceeds are in the form of fiat currency or Crypto Assets—will face serious consequences,” said U.S. Attorney Nicholas Ross in a statement. This statement clearly indicates that the U.S. government does not accept a defense of “technological neutrality,” meaning even developers of privacy-protecting tools could face criminal liability for the misuse of their services.

Details of the Founders' Judgment

Gion Rodriguez (CEO): Up to five years imprisonment, three years of regulatory release, and a fine of $250,000.

William Lannigan Hill (CTO): Four years imprisonment, three years of regulatory release, $250,000 fine

Jointly confiscated funds: Over 6.3 million USD

The age difference between 37-year-old Rodriguez and 67-year-old Hill is also striking. As a 67-year-old senior technology expert, four years of imprisonment may have more severe health and life impacts on him. This harsh sentence reflects the American judicial system's tough stance on Crypto Assets crimes, regardless of the defendant's age or background.

Prosecutors allege: “An application aimed at transferring criminal proceeds”

In August, prosecutors stated that Samourai Wallet is an application “designed to transfer criminal proceeds,” and Hill and Rodriguez knew it was used to conceal funds. The key to this accusation lies in the word “know,” meaning that the prosecution believes that the two founders not only provided the technological tools but were also aware that the tools were being used for illegal purposes.

The prosecution's evidence may include internal communication records, user feedback, and transaction data analysis, showing that a considerable proportion of users of Samourai Wallet are involved in illegal activities. However, the defense may argue that any privacy protection tool can be misused, just like cash or encryption software, and developers should not be held responsible for the actions of users. But this defense clearly failed to convince the court.

Prosecutors stated that the service helps criminals “launder hundreds of millions of dollars of dirty money.” Although the prosecution did not disclose specific amounts, the scale of “hundreds of millions of dollars” indicates that this is not an isolated case, but rather a systemic money laundering operation. The mixing service of Samourai Wallet may have been used to launder ransomware payments, dark web transaction proceeds, or other illegal sources of funds.

The two individuals have paid over 6.3 million dollars in forfeiture, a figure that may represent the illegal gains or fines identified by the prosecution. This financial penalty, combined with the prison sentence, constitutes a double blow to the developers of encryption privacy tools, depriving them of both freedom and property.

Tornado Cash Case: Does Writing Code Constitute a Crime

In recent years, Crypto Assets mixing services have been the focus of prosecutors' attention. Tornado Cash developer Roman Storm was charged in 2023 with money laundering, conspiring to operate an unlicensed remittance business, and violating sanctions regulations. In August of this year, the jury was unable to reach a consensus on the charges of money laundering and violation of sanctions regulations, but found the charges related to Storm's remittance business to be valid.

The Tornado Cash case and the Samourai Wallet case have many similarities, but there are also key differences. Tornado Cash is an Ethereum-based smart contract mixer, and once deployed on the blockchain, developers theoretically cannot control or shut it down. In contrast, Samourai Wallet is a centralized service, and the founders maintain control over the system, making it easier for prosecutors to argue that they bear responsibility for the misuse of the service.

In August of this year, Assistant Attorney General Matthew J. Galati of the Criminal Division of the Department of Justice stated that “writing code” is not a crime. This statement attempts to draw a line: pure code development and academic research should be protected, but if developers are aware that their tools are being used for criminal activities and profit from it, it could constitute conspiracy.

At the same time, Crypto Assets advocates have been raising funds to provide legal assistance for Storm and urging lawmakers to protect the rights of software developers while deliberating on how to regulate the digital assets industry. This initiative reflects the Crypto Assets community's concerns about excessive government regulation, as they believe that privacy is a fundamental human right and that developers of privacy protection tools should not be held responsible for the actions of malicious users.

The Future of Encryption Privacy and Regulatory Dilemmas

The ruling in the Samourai Wallet case has created a chilling effect on the Crypto Assets privacy tools industry. Many developers of privacy wallets and mixing services may reassess their legal risks, with some possibly choosing to shut down services or relocate to jurisdictions with looser regulations. This regulatory pressure could drive Crypto Assets privacy technology towards a fully decentralized direction, making it so that no single entity can be held accountable.

However, fully decentralized privacy tools also bring new challenges. They may be harder to regulate and more easily abused. The tension between regulators and the crypto community lies in the fact that the former focuses on combating crime, while the latter emphasizes privacy rights and financial freedom. Finding a balance requires more nuanced legislative and case law development.

For ordinary Crypto Assets users, the message conveyed by these cases is that using privacy protection tools is not completely safe. Even if the tools themselves are legal, users may still face investigations if they are deemed to be participating in suspicious transactions. This may reduce the adoption rate of privacy tools, but it could also drive the development of more transparent and compliant privacy solutions.

The guilty plea and sentencing of the two co-founders of Samourai Wallet marks a new phase in the United States' regulation of Crypto Assets privacy tools. The rulings in similar cases in the future will further shape the legal boundaries of this field, determining the balance between privacy protection and anti-money laundering.