The legal landscape surrounding cryptocurrency software development in the United States faces a critical juncture as software developer Michael Lewellen continues his challenge against the Department of Justice (DOJ) in the United States Court of Appeals for the Fifth Circuit. On Monday, Lewellen filed a formal reply brief, pushing back against the district court’s earlier decision to dismiss his pre-enforcement challenge. At the heart of the litigation is the interpretation of 18 U.S.C. § 1960, a federal statute concerning unlicensed money-transmitting businesses, which Lewellen argues the DOJ is using to effectively criminalize the act of publishing non-custodial software.
The dispute centers on "Pharos," a non-custodial cryptocurrency tool designed for crowdfunding. Lewellen seeks a declaratory judgment to establish that the mere act of developing and releasing such software does not classify him as an unlicensed money transmitter. If successful, the case could provide a foundational precedent protecting developers from criminal liability for the tools they create, an issue that has become increasingly contentious as federal agencies sharpen their focus on the digital asset sector.
A Chronology of the Conflict
The friction between software developers and federal regulators has escalated significantly over the past five years. While the Financial Crimes Enforcement Network (FinCEN) issued guidance in 2019 clarifying that developers of software tools are generally not subject to money-transmission regulations—provided they do not exercise control over user funds—the DOJ has increasingly diverged from this interpretation.
- May 2019: FinCEN publishes comprehensive guidance clarifying that "money transmission" requires a level of control over funds that is absent in non-custodial software development.
- 2022–2024: The DOJ initiates high-profile criminal actions against developers behind platforms such as Tornado Cash and Samourai Wallet, alleging that their software facilitated illegal financial activities and that they failed to register as money-transmitting businesses under 18 U.S.C. § 1960.
- Early 2024: Michael Lewellen files a pre-enforcement challenge in the Northern District of Texas, seeking to preemptively clarify his legal standing before releasing Pharos.
- Mid-2024: Then-Deputy Attorney General Todd Blanche issues a memorandum outlining DOJ enforcement priorities. The district court cites this memo to argue that Lewellen faces no "credible threat" of prosecution, subsequently dismissing his case.
- September 2026: Lewellen files his reply brief with the Fifth Circuit, asserting that the lower court’s dismissal was premature and that the threat of prosecution remains a live issue.
The Core Legal Argument: Defining Money Transmission
The central tension in this case lies in the definition of a "money-transmitting business." Under 18 U.S.C. § 1960, individuals operating such businesses without proper licensing face severe federal penalties. The DOJ’s recent legal theory posits that developers who build and distribute software that enables transactions are, in essence, operating these businesses, even if the software is non-custodial and the developer has no access to the underlying assets.
Lewellen’s legal team contends that this interpretation is a radical departure from the text of the law. The brief filed this week highlights four specific points of contention regarding why the district court’s reliance on the Blanche memo was misplaced.
First, Lewellen argues that the "credible threat" of prosecution is inherent in the DOJ’s pattern of behavior. By pointing to the aggressive prosecutions of Tornado Cash and Samourai Wallet developers, Lewellen asserts that he is not required to wait for a federal indictment to seek clarity on his rights. He maintains that the threat is not "generalized" but specific to his role as a developer of decentralized financial software.
Second, the brief addresses the role of FinCEN. Lewellen argues that the DOJ’s disregard for FinCEN’s 2019 guidance undermines the rule of law. Because the DOJ has successfully prosecuted developers despite their compliance with, or reliance on, FinCEN’s regulatory framework, the threat to Lewellen is magnified. He argues that he should not be forced to seek an advisory opinion from FinCEN when the DOJ has shown a willingness to ignore such opinions in favor of pursuing criminal charges under § 1960.
The Role of the Blanche Memo and Administrative Discretion
The DOJ’s defense has rested heavily on the memo issued by Todd Blanche, which outlines discretionary enforcement priorities. The government argues that this memo effectively shields developers like Lewellen from prosecution, rendering his lawsuit moot.
However, legal experts following the case note that a policy memo is not a statute. It represents the current administration’s enforcement priorities, which can be rescinded, amended, or ignored by subsequent leadership. Lewellen’s brief argues that because the memo does not change the underlying legal interpretation of § 1960, the threat to his liberty remains constant. Furthermore, the memo was released after the initial lawsuit was filed, which Lewellen’s counsel argues cannot retroactively strip him of standing to challenge the government’s interpretation of federal law.
Implications for the Blockchain Industry
The failure of Congress to pass the Blockchain Regulatory Certainty Act (BRCA) has left a vacuum that is currently being filled by the judiciary. While proponents of the legislation hoped it would provide a safe harbor for developers, the version of the bill that stalled in the Senate was criticized by industry advocates for its limited scope. Specifically, critics argued that it failed to address the criminal statutes in § 1960, focusing instead on broader regulatory compliance.
If the Fifth Circuit reverses the district court’s decision, it could force the DOJ to justify its interpretation of "money transmission" in an open court setting. A victory for Lewellen would represent a significant check on administrative power, ensuring that the development of open-source, non-custodial software is not treated as a per se criminal act.
Conversely, if the court upholds the dismissal, it may set a chilling precedent. Developers across the United States could find themselves in a state of perpetual legal limbo, unable to challenge overreaching interpretations of the law without first subjecting themselves to the risks of federal investigation and potential incarceration.
Broader Perspectives and Industry Reaction
The case has drawn significant attention from organizations focused on digital privacy and civil liberties. Industry observers note that the DOJ’s strategy—which focuses on the act of publishing code—effectively conflates the creation of a tool with the misuse of that tool by third parties.
"The fundamental question is whether software is speech," notes one legal scholar following the case. "If you are coding a tool that acts as a ledger or a communication channel, the government’s assertion that you are ‘transmitting money’ requires a logical leap that ignores the non-custodial nature of the technology."
As the Fifth Circuit deliberates, the industry remains in a state of heightened caution. The outcome will likely determine the extent to which developers can innovate without the shadow of the DOJ’s interpretation of 18 U.S.C. § 1960 looming over their keyboards. For now, Michael Lewellen’s fight continues as a test case for whether the American legal system will distinguish between the development of software infrastructure and the active operation of financial services.
The DOJ is expected to file a response to the reply brief in the coming weeks. Given the high stakes involved for both the government’s enforcement strategy and the developer community, observers anticipate that the Fifth Circuit’s eventual ruling could be appealed to the Supreme Court, particularly if the decision highlights a split in legal interpretations regarding the scope of federal money-laundering statutes.
