Author: Nikhilesh De, CoinDesk; Translation: Song Xue, LianGuai
Roman Storm and Roman Semenov, the developers of Tornado Cash, have been charged with money laundering and violating sanctions. Storm has been arrested by the Department of Justice.
The DOJ claims that over $1 billion in transactions were conducted through the mixing service, which attempted to conceal the identities of the individuals behind cryptocurrency transactions.
Tornado Cash developers Roman Storm and Roman Semenov have been charged with money laundering and violating sanctions, “assisting in laundering over $1 billion,” including “hundreds of millions of dollars” of money laundering activity by the North Korean Lazarus Group. Storm has been arrested by the US Department of Justice.
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The mixer obfuscated the source of funds transacted through it and was sanctioned by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) last year, with allegations that Lazarus laundered funds obtained through multiple cryptocurrency hacks using the mixer. Semenov has also been sanctioned by OFAC on Wednesday and his alleged control over eight Ethereum addresses has been sanctioned as well.
US Attorney Damien Williams stated in a statement that Tornado Cash and its operators “intentionally facilitated” money laundering activities.
“While publicly claiming to offer technologically advanced privacy services, Storm and Semenov were actually helping hackers and fraudsters conceal the proceeds of their crimes. Today’s indictment should remind everyone that money laundering through cryptocurrency transactions is illegal and participating in such laundering activities will result in prosecution,” he said.
In a statement, Storm’s lawyer, Brian Klein of Waymaker LLP, stated that the case was based on a “novel legal theory.”
“We are disappointed that the prosecutors chose to charge Mr. Storm, who helped develop software, and that they did so based on a novel legal theory that has dangerous implications for all software developers. Mr. Storm has been cooperating with the investigation since the incident occurred. Last year, he objected to his involvement in criminal activity. There is much more to this story that will be revealed in court,” he said.
It’s Difficult to Kill Decentralized Services like Tornado Cash
The US government has been imposing sanctions on Tornado Cash since last year, highlighting the difficulty of completely shutting down “decentralized” services. Programmers have borrowed Tornado Cash’s open-source code to create new programs with similar functionality.
The blockchain-based core software or “smart contracts” that support Tornado Cash can still be used on Ethereum. However, using these smart contracts is illegal in the United States, and major blockchain infrastructure providers such as Infura and Alchemy (which many applications that interact with the Ethereum blockchain use) have reviewed access to the Tornado Cash application based on sanctions.
According to the Department of Justice’s indictment on Wednesday, Stom and Shevchenko designed Tornado Cash with various privacy features, knowing that their service would be used for illegal purposes. In addition, the Department of Justice claims that they maintained control over Tornado Cash and could have used it for transaction monitoring or other anti-money laundering functions.
The indictment also frequently mentions another co-founder, Alexey Pertsev, who was arrested in the Netherlands last year and is currently awaiting trial on money laundering charges.
The three founders created an optional compliance tool to track deposits and withdrawals. The Department of Justice claims that the tool did not collect any anti-money laundering or KYC information.
“The defendants and Pertsev recognized that they did not incorporate KYC or AML programs as required by law, so they made misleading public statements in an attempt to minimize their ownership and control over the Tornado Cash service and their operation of the Tornado Cash service, which they expected to be a profitable business,” the indictment states.
KuCoin, BitMart, Axie Infinity
The Department of Justice further alleges that the defendants knew that their service was being used for money laundering, with the funds coming from hackers and other thefts, mentioning the KuCoin and BitMart hacks in 2020 and 2021 respectively. The later part discusses the Axie Infinity Ronin Bridge hack.
The document states that employees representing exchanges have contacted the developers, but they refused to “provide any assistance.”
The Department of Justice also discussed the TORN token associated with Tornado Cash, citing Shevchenko’s message that they need to increase the token’s price. After Tornado Cash was first sanctioned, Stom distributed $2.6 million worth of unnamed stablecoins to each founder and told them to move the funds to a new address.
A press release issued by the U.S. Department of the Treasury on Wednesday stated, “Since its creation in 2019, Tornado Cash has been used to launder money for criminals, including the billions of dollars in virtual currency stolen by the Lazarus Group hackers.”
The arrest operation on Wednesday comes just a week after a federal judge ruled that OFAC sanctions on Tornado Cash did not violate the rights of cryptocurrency investors and developers.