- New bill protects non-custodial developers from unfair prosecution.
- Clarifies that Section 1960 applies only to those who control customer funds.
- Bill draws a line between coders and money transmitters.
- Backers say it safeguards U.S. crypto innovation.
US lawmakers have introduced the Promoting Innovation in Blockchain Development Act of 2026 to protect software developers from criminal prosecution. The measure, which aims to draw a boundary between entities that control user funds and those who merely write code, includes a provision that the DeFi sector has long pressed for to be part of the CLARITY Act
Drawing the Line Between Developers and Money Transmitters
On Friday, Reps. Scott Fitzgerald, Zoe Lofgren, and Ben Cline introduced the novel bill to block the prosecution of software developers who write code, as opposed to those who hold and transmit customers’ assets. The legislation clarifies that Section 1960 of the Criminal Code only applies to developers who handle funds
It applies to individuals or entities that transfer funds on behalf of others without proper state licenses or that fail to comply with federal registration requirements, including anti-money-laundering (AML) obligations. The law is commonly used to prosecute illegal money transmission schemes, including those involving digital assets, when operators are found to be moving or controlling customer funds without authorization.
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ADVERTISEMENTSection 1960 refers to 18 U.S.C. § 1960 of the federal criminal code, which classifies as criminal activity the operation of unlicensed money transmitting businesses. It makes it unlawful for anyone or any entity to transfer funds for others without the requisite state licenses and federal compliance requirements, including anti-money-laundering (AML) provisions
Authorities often invoke the provision to pursue unlawful money transmission schemes, including crypto-related cases, where individuals are accused of holding or moving customer funds without regulatory clearance.
The bill presents regulatory clarity to the debate of whether non-custodial developers should be prosecuted the same way as custodial actors. It aligns with the initial intent of Section 1960 and represents Congressional and judicial consensus on the matter
ADVERTISEMENT## Protecting Innovation While Targeting Criminal Activity
While section 1960 originally applied to custodial developers, the cases of Tornado Cash and Samourai Wallet, where the law was applied to developers who wrote only code, necessitated the clear boundaries the bill establishes.
“For too long,” said Rep. Cline, “federal overreach has blurred the line between bad actors and the innovators building next-generation technology.”
“This bipartisan bill restores needed clarity by protecting developers who don’t control customer funds, while ensuring law enforcement can continue to target real criminals. I’m proud to support this effort to keep America the global leader in blockchain innovation.”
Over the past few years, experts raised an alarm over a massive outflow of American developers to other jurisdictions due to the fear of unfair prosecution. Once the new legislation gets passed, it will ensure the protection of these non-custodial developers, and by extension, secure the future of American leadership in the digital asset space.
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