Why Bitcoin mixer Samourai Wallet became the latest target in the US crypto crackdown

Crypto privacy advocates are calling on the industry to rally after the Department of Justice arrested two co-founders of Samourai Wallet, a Bitcoin wallet with a built-in crypto mixer called Whirlpool.

The US Attorney’s Office of the Southern District of New York announced Wednesday that it had charged and arrested Samourai Wallet founders Keonne Rodriguez and William Lonergan Hill with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmitting business.

“It’s critical that we protect the tools we have for privacy as normal citizens, now more than ever,” Alan Scott, a contributor to the Railgun Privacy Project, told DL News.

The crackdown comes after Samourai Wallet seemingly welcomed users looking to evade US sanctions in June.

“Welcome new Russian oligarch Samourai Wallet users,” the Samourai Wallet X account said at the time.

Welcome new Russian oligarch Samourai Wallet users https://t.co/WBhB6J89SR

— Samourai Wallet (@SamouraiWallet) June 30, 2022

“Samourai was arrogant and flaunted Russian war sanctions in public, probably not helping their case,” Mikko Ohtamaa, a security researcher and CEO of DeFi trading protocol Trading Strategy, told DL News.

The Samourai Wallet founders are accused of developing, marketing, and operating a cryptocurrency mixer that executed over $2 billion in unlawful transactions and facilitated more than $100 million in money laundering transactions, the press release said.

It’s the latest in a string of enforcement actions targeting tools that help crypto users hide their identities and keep their transaction histories private.

The news hit as the European Parliament voted to ban crypto mixers on Wednesday.

Like Tornado Cash

US authorities have previously taken enforcement against several crypto mixers and privacy protocols, most notably Tornado Cash.

Tornado Cash developer Alexey Pertsev, accused of laundering $1.2 billion, stood trial in The Netherlands last month, while fellow developer Roman Storm is set to go to trial in September.

As the biggest and most frequently used privacy protocol at the time, the US’ interest in Tornado Cash was obvious.

According to Ohtamaa, Samourai Wallet’s Whirlpool differs from Tornado Cash in that it requires centralised components such as web servers to work. “The server is now gone and so is Samourai,” he said.

Centralised components make it easier for authorities to shut down mixers, and bring money laundering charges against their creators, as their active input is required for the mixer to work.

Ohtamaa said that any possible enforcement action brought against other mixers would likely resemble Pertsev’s Tornado Cash case, where prosecutors argue that the protocol, while claiming to be decentralised, was actually “run like a company.”

Are mixers the problem?

Crypto mixers and privacy protocols aren’t where regulators should focus their anti-money laundering efforts, Ohtamaa said.

“The most effective place to stop money laundering is centralised on and off ramps,” he said, referring to centralised crypto exchanges.

Large centralised exchanges — such as Binance and Coinbase — already flag funds sent through mixers and privacy protocols. But smaller, more obscure exchanges often do not.

Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.