A federal appeals court in Washington, D.C., is weighing how far U.S. money transmission and venue laws can reach into global, internet‑based crypto services, in a case that could shape the legal risk for mixers, wallets and other cross‑border platforms.
A three‑judge panel of the U.S. Court of Appeals for the District of Columbia Circuit heard arguments in the appeal of Roman Sterlingov, convicted in 2024 of money laundering conspiracy and operating an unlicensed money transmission business tied to Bitcoin Fog, a long‑running bitcoin mixing service accused of processing hundreds of millions of dollars from dark web markets.
The core question: can prosecutors anchor venue in Washington, D.C., for a global online service largely alleged to have operated overseas, based largely on undercover transactions originating from the district and data‑driven efforts to link Sterlingov to the platform?
The outcome could influence how federal courts apply jurisdiction and liability rules to a wide range of crypto and digital services with users scattered across multiple countries and states.
Dispute over venue: did undercover use in D.C. create jurisdiction?
Defense attorney Tor Ekeland argued that the government “manufactured” venue in Washington by having undercover agents in the district route bitcoin through Bitcoin Fog. According to the defense, the record does not show that the core operation of the service, or Sterlingov himself, was based in the United States, much less in the nation’s capital.
Prosecutor Christopher Ellickson countered that the mixing service knowingly served U.S. users and therefore fell within U.S. jurisdiction, including Washington, D.C. On that theory, the government need not show the servers or operators were physically present in the district, only that the business reached knowingly into the forum.
Judges pressed both sides on whether a handful of undercover transactions can suffice to establish venue. Their questions suggested concern over whether allowing law enforcement activity alone to “create” venue in any chosen district would give prosecutors effectively unlimited flexibility in where to bring charges against global online services.
Scrutiny of FBI “IP overlap” analysis and expert testimony
The panel also examined the reliability of technical evidence used to link Sterlingov to Bitcoin Fog.
The government relied in part on an “IP overlap” analysis, in which an FBI investigator testified that certain internet protocol addresses associated with Sterlingov corresponded with addresses or patterns tied to the operation of Bitcoin Fog.
One judge asked for clarification of the statistical basis for that testimony, including how the overlap was quantified, what sample size was used and how the error rate was derived. The defense has argued that the analysis lacked peer review, a clearly articulated methodology and a calculated margin of error, elements typically expected of expert evidence in federal court.
The judges did not indicate a timetable for their decision, but they could affirm the conviction, overturn it, or send the case back to the trial court for further proceedings or a new trial.
Section 1960 under pressure as crypto cases expand
The appeal arrives as Section 1960, the federal statute targeting unlicensed money transmission businesses, faces mounting legal and policy challenges.
Section 1960 has been applied not only to traditional remitters but also to operators and developers linked to crypto privacy tools and mixing services. Critics argue that the statute, drafted before modern crypto markets, has been stretched to cover a wide range of software‑driven activities that move value but may not resemble conventional money service businesses.
The latest draft of the proposed Clarity Act, circulating in Washington policy circles, would narrow liability under Section 1960 by requiring proof that a defendant acted with “specific intent and knowledge” in facilitating the movement of criminal funds. That language aims to distinguish between general‑purpose tools and services designed or used primarily to launder money.
However, the definition of “intent” remains a live dispute. Depending on how courts interpret that term, developers and service operators could still face exposure if prosecutors argue they were willfully blind to obvious criminal use of their tools.
Legislative push: clarity act aims to set regulatory boundaries
Legislative efforts are unfolding alongside the courts. The Senate Banking Committee on Wednesday released a 309‑page draft of the CLARITY Act, a wide‑ranging bill that seeks to create a more stable regulatory framework for digital assets.
Among its central features, the bill attempts for the first time to draw explicit jurisdictional lines between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Market participants have long complained that overlapping or conflicting interpretations from the two agencies create uncertainty around token classification, registration and trading rules.
The committee has scheduled a vote on the draft for May 14. If it advances, the bill could catalyze a broader debate in Congress over how far existing financial laws should reach into emerging crypto, stablecoin and decentralized finance markets.
Justice department signals nuance on decentralized software
The Department of Justice has also tried to clarify its enforcement posture. In August 2025, Acting Assistant Attorney General Matthew Galeotti said the department would not pursue unlicensed money transmission charges under Section 1960 against developers of “truly decentralized” software, provided they do not hold user assets and lack criminal intent.
That statement drew a line between coding and operating. According to Galeotti, writing and publishing open‑source code, without custody of funds or active involvement in illicit flows, should not alone trigger criminal liability. By contrast, tools or platforms that are centrally controlled, or whose operators knowingly enable laundering, remain squarely in the department’s sights.
For software creators and protocol designers, that nuance matters. But absent statutory changes, prosecutors and courts retain broad discretion to decide when development activity crosses into operation of a money transmitting business.
Courts continue broad reading of “money transmission”
Despite these administrative and legislative signals, recent case law has generally favored a wide application of financial rules to crypto activity.
In April 2026, the Second Circuit Court of Appeals held that even in‑person, hand‑to‑hand exchanges of bitcoin for cash can meet the definition of a money transmitting business under federal law. The court reasoned that any enterprise that regularly moves value from one person to another in exchange for a fee or spread falls within the regulatory perimeter, regardless of whether it uses banks, apps, or physical cash.
That decision suggests that both on‑chain and offline activity may require registration and licensing if they functionally act as intermediaries in value transfer. The ruling also signals that courts may prioritize economic reality over technical form when applying legacy statutes to new technologies.
Rising illicit flows and the dominance of stablecoins
These legal battles unfold against a backdrop of surging illicit financial activity in digital assets.
A January 2026 report estimated that illicit blockchain addresses received at least 154 billion dollars in 2025, up 162% from the previous year. While data collection and classification methods vary, the scale and growth of these flows have increased pressure on regulators and law enforcement to act.
Another analysis published around the same time found that stablecoins accounted for roughly 84% of all illicit transaction volume. For those tracking market structure, this points to a clear preference among criminal actors for assets that maintain a stable value while still moving efficiently across borders and platforms.
Regulators are likely to use these figures to justify more aggressive enforcement, especially around stablecoin issuers, liquidity providers and off‑ramp services.
What is at stake for global online platforms
Beyond the fate of a single defendant, the Sterlingov appeal raises a foundational question: can a global service that operates largely outside the United States be legally anchored to a specific American city simply because law enforcement agents choose to interact with it from that location?
If the court endorses a generous view of venue, prosecutors could potentially establish jurisdiction in almost any district where agents can access a service, even if the service’s operators never targeted or even knew of users there. That would significantly expand the legal exposure of web‑based platforms, mixers, payment tools and marketplaces serving an international user base.
If the court demands a tighter connection between the alleged conduct and the chosen venue, it could force prosecutors to bring cases in locations more clearly tied to the service’s operations or primary user base, complicating enforcement against distributed or pseudonymous teams.
Signals for traders and the broader market
For traders and market operators, the eventual ruling will be watched as a key signal on whether the government’s expansive enforcement theory will hold in appellate courts.
So far, the judiciary has largely supported a broad application of existing financial regulations to crypto, even while legislative and administrative proposals move toward more nuanced approaches. A decision upholding both the venue theory and the technical evidence in the Sterlingov case would reinforce that trend.
Conversely, if the court narrows the acceptable basis for venue or questions the sufficiency of the expert analysis, it could modestly constrain future prosecutions and raise the bar for technical evidence in complex crypto cases.
Until the ruling arrives, market participants must navigate a patchwork of prosecutorial guidance, draft legislation and evolving case law, in an environment where activities that “functionally” move value are increasingly likely to be treated as regulated money transmission, regardless of the underlying technology.
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