In a recent development, the creators behind Tornado Cash, Roman Storm and Roman Semenov, have been charged with involvement in money laundering and violating sanctions.
The Department of Justice has apprehended Storm, alleging that the mixing service, which aims to obscure the identities behind cryptocurrency transactions, has facilitated over $1 billion in transactions.
The charges against Storm and Semenov extend to their involvement with the privacy mixer, which is implicated in laundering substantial amounts, including a considerable sum tied to North Korea’s Lazarus Group.
The U.S. Treasury Department’s Office of Foreign Asset Control had previously sanctioned the mixer after claims that it laundered funds from crypto hacks. This led to the sanctioning of Semenov and several Ethereum addresses under his control.
U.S. Attorney Damien Williams emphasized that Tornado Cash’s operators were fully aware of their role in facilitating money laundering activities. The charge serves as a reminder that cryptocurrency-based money laundering is illegal and will be subject to legal action.
Brian Klein, representing Storm, expressed disappointment over the charges. He indicated that the case rests on a unique legal theory, which could have far-reaching implications for all software developers. Klein highlighted Storm’s cooperation with the investigation and denied any involvement in criminal activities, suggesting that more details will emerge during the trial.
The U.S. government’s sanctions on Tornado Cash underscore the complexities of breaking a decentralized service. While sanctions were imposed, the underlying blockchain-based software utilized by Tornado Cash remains functional. However, its use within the U.S. is legally prohibited. Notable blockchain infrastructure providers have adhered to sanctions by restricting access to the Tornado Cash app.
Inside the Allegations
The accusation asserts that Storm and Semenov deliberately designed Tornado Cash with privacy features, fully aware of their service’s potential misuse for illegal activities. Despite public claims to the contrary, they are accused of maintaining control over the service.
Alexey Pertsev, another co-founder, frequently appears in the accusation. He was arrested last year in the Netherlands and is awaiting trial on money laundering charges. The charge also highlights the creation of an optional compliance tool by the founders. However, this tool allegedly failed to gather crucial anti-money laundering or know-your-customer information.
The accusation cites a message from Storm to Semenov, advising against discussions that imply ownership of Tornado Cash.
The DOJ alleges that the founders knew their service was being exploited to launder funds from various hacks and thefts. References are made to incidents involving KuCoin, BitMart, and the Axie Infinity Ronin Bridge hack. Despite outreach from representatives of the affected exchanges, the founders declined to assist.
TORN Tokens and Price Manipulation
The accusation also touches on TORN tokens associated with Tornado Cash, citing messages from Semenov about boosting the token’s price. After the initial sanctions, Storm reportedly distributed $2.6 million to each founder in an unnamed stablecoin, instructing them to transfer the funds to new addresses.
Conclusion and Legal Implications
These recent events follow a recent court ruling that confirmed the legality of sanctions imposed on Tornado Cash, sparking discussions on the rights of crypto investors and developers.
The charges against Tornado Cash’s developers have exposed the intricate nature of decentralized services, while shedding light on alleged involvement in significant money laundering activities, including ties to high-profile cyberattacks.