Michael Lewellen, a prominent software developer, has officially filed a notice of appeal with the U.S. Court of Appeals for the Fifth Circuit, escalating a high-stakes legal battle against the Department of Justice (DOJ). The appeal, filed in the case of Lewellen v. Garland, seeks to overturn a district court’s March 25 decision that dismissed his lawsuit on the grounds of standing. Supported by the cryptocurrency advocacy group Coin Center, Lewellen is challenging the federal government’s interpretation of money transmission laws, arguing that the mere act of publishing non-custodial software should not subject developers to the threat of felony prosecution.
The crux of the dispute lies in whether individuals who write and publish code for privacy-enhancing, non-custodial financial tools can be classified as "money transmitters" under the Bank Secrecy Act (BSA) and 18 U.S.C. § 1960. While the district court did not rule on the underlying merits of the case, it held that Lewellen failed to demonstrate a "credible threat of prosecution," citing recent DOJ policy shifts. Lewellen and his legal team contend that this dismissal creates a "Catch-22" for developers: they must either cease their work, operate under a cloud of legal uncertainty, or risk imprisonment to test the law’s boundaries.
The Legal Foundation: Money Transmission and Non-Custodial Software
To understand the gravity of Lewellen v. Garland, it is necessary to examine the federal statutes governing money transmission. Under 18 U.S.C. § 1960, it is a federal crime to operate an "unlicensed money transmitting business." Historically, this definition applied to entities like Western Union or traditional banks that take physical or digital custody of a customer’s funds to move them from one point to another.
However, the rise of decentralized finance (DeFi) and self-custodial tools has blurred these lines. Non-custodial software allows users to interact with blockchain networks directly. The developer of such software does not hold the user’s private keys, does not authorize transactions, and never takes possession of the assets. In this model, the developer provides the "tools," while the user remains the "operator."
The Financial Crimes Enforcement Network (FinCEN) issued guidance in 2013 and 2019 stating that "software providers" who do not engage in the acceptance and transmission of value are generally not considered money transmitters. Despite this, the DOJ has recently pursued criminal charges against developers of similar tools, leading to widespread fear within the software engineering community. Lewellen’s lawsuit was designed as a pre-enforcement challenge to gain judicial clarity before an indictment could occur.
Chronology of the Dispute
The legal journey of Lewellen v. Garland reflects the increasing tension between the privacy-preserving goals of blockchain developers and the regulatory objectives of the U.S. government.
May 2023: Michael Lewellen, represented by Coin Center, initiates a lawsuit against Attorney General Merrick Garland and the Department of Justice. The suit argues that the government’s broad interpretation of "money transmitter" violates the First Amendment (code as speech) and the Due Process Clause of the Fifth Amendment due to the vagueness of the statute.
Late 2023 – Early 2024: The DOJ moves to dismiss the case. During the proceedings, the government introduces internal policy memoranda suggesting that the DOJ would deprioritize enforcement actions against developers of non-custodial software who lack "control" over user funds.
March 25, 2024: The U.S. District Court for the Northern District of Texas grants the government’s motion to dismiss. The court rules that because of the DOJ’s stated policy positions, Lewellen does not face an "imminent" or "credible" threat of prosecution, thus lacking Article III standing to bring the suit.
April 2024: Lewellen files his notice of appeal to the Fifth Circuit. The appeal argues that policy memos are insufficient to protect constitutional rights and that the government’s history of enforcement against other developers proves the threat is real.
The Standing Conflict: Policy Memos vs. Legal Precedent
The primary reason for the district court’s dismissal was the lack of "standing," a legal doctrine that requires a plaintiff to show they have suffered, or will imminently suffer, a concrete injury. The court leaned heavily on a DOJ policy memo that appeared to narrow the scope of who might be targeted for unlicensed money transmission.
Legal analysts and Coin Center advocates argue that relying on executive branch memos is a precarious foundation for civil liberties. Unlike statutes passed by Congress or rulings issued by the judiciary, policy memos are non-binding. They can be rescinded by a change in administration or even a shift in internal departmental priorities without public notice.
Furthermore, the "credible threat" Lewellen cites is not theoretical. The government has already moved against developers in high-profile cases. For instance, the prosecution of the founders of Tornado Cash—a non-custodial privacy protocol—has sent shockwaves through the industry. While the DOJ distinguishes these cases based on specific facts, developers argue that the underlying legal theory used in those indictments could easily be applied to any non-custodial software provider.
Supporting Data: The Cost of Regulatory Uncertainty
The chilling effect of the DOJ’s stance is measurable through the migration of blockchain talent and capital. According to a 2023 report on the global developer ecosystem, the United States’ share of open-source crypto developers has declined steadily over the last five years, dropping from approximately 40% to 28%. Industry experts attribute this decline to "regulation by enforcement," where the rules are clarified through criminal trials rather than clear legislative or administrative guidelines.
In a survey of 500 blockchain developers conducted by an industry trade group, 62% cited "legal risk" as their primary concern when launching new privacy-preserving tools. The cost of defending against a federal money laundering or unlicensed money transmission charge can reach millions of dollars, a burden that individual developers like Lewellen cannot bear.
By seeking a pre-enforcement review, Lewellen is attempting to lower the "entry fee" for constitutional challenges. Under the current district court ruling, a developer must essentially commit what the government considers a felony and wait to be arrested before they can argue in court that the law does not apply to them.
Reactions from Legal Experts and Related Parties
The appeal has drawn significant attention from constitutional scholars and digital rights organizations. Neeraj Agrawal, Director of Communications at Coin Center, emphasized that the case is about the fundamental right to publish information. "Until this question is resolved, developers remain in legal limbo: forced to choose between building and risking prosecution, or staying silent," Agrawal stated. "This appeal is about ending that uncertainty."
Conversely, proponents of the DOJ’s current approach argue that broad statutes are necessary to prevent money laundering and the financing of terrorism. They suggest that "non-custodial" is often a marketing term used to obscure the fact that developers may still exert significant influence over a protocol’s operations.
However, the Fifth Circuit—known for its robust defense of individual liberties and its skepticism of administrative overreach—may prove a more receptive audience for Lewellen’s arguments. In previous cases, the Fifth Circuit has shown a willingness to curb the government’s ability to use vague statutes to stifle innovation or speech.
Broader Implications for the Software Industry
The outcome of Lewellen v. Garland will have implications far beyond the cryptocurrency sector. If the Fifth Circuit agrees with the district court that a policy memo is enough to strip a plaintiff of standing, it could set a precedent that allows federal agencies to avoid judicial review of their most controversial interpretations of the law.
From a technological standpoint, the case touches on the "Code is Speech" doctrine established in the 1990s during the "Crypto Wars," when the government tried to prevent the export of encryption software. The courts eventually ruled that source code is a form of expression protected by the First Amendment. Lewellen’s team argues that the DOJ’s current stance is a modern-day attempt to bypass those protections by reclassifying the publication of code as a regulated financial service.
If Lewellen succeeds in the Fifth Circuit, the case will return to the district court for a trial on the merits. A victory there would provide a "safe harbor" for developers, ensuring that as long as they do not take custody of user funds, they are not acting as money transmitters. If he loses, the divide between the U.S. regulatory environment and the global developer community is likely to widen, potentially pushing the next generation of financial privacy tools entirely offshore.
Conclusion and Next Steps
As the case moves to the Fifth Circuit, the legal community will be watching for the filing of amicus briefs from privacy advocates, software engineering associations, and perhaps even state attorneys general. The core question remains: Are non-custodial software developers money transmitters under federal law?
The Fifth Circuit is expected to set a briefing schedule in the coming weeks. For Michael Lewellen and the thousands of developers he represents, the appeal is more than a procedural step; it is a quest for the right to innovate without the looming shadow of a federal indictment. The resolution of this case will define the boundary between regulated financial activity and protected intellectual expression for the digital age.
