Developers of Tornado Cash Charged with Money Laundering and Sanctions Violations
Tornado Cash developers Roman Storm and Roman Semenov have been charged with money laundering and sanctions violations. The privacy mixer they worked on allegedly facilitated over $1 billion in money laundering, including funds for North Korea’s Lazarus Group. Storm has already been arrested by the Department of Justice (DOJ). The mixer was sanctioned by the US Treasury Department’s Office of Foreign Asset Control (OFAC) last year, and Semenov was also sanctioned recently. The DOJ stated that Tornado Cash knowingly facilitated money laundering and violated the law.
Challenges of Shutting Down a Decentralized Service
The US government’s sanctions against Tornado Cash have shed light on the difficulties of completely shutting down a decentralized service. Although the sanctions have limited access to the Tornado Cash app, other programs with similar functionality have emerged using Tornado Cash’s open-source code. The core software behind Tornado Cash, which runs on Ethereum, remains usable but is technically illegal in the US. Infrastructure providers like Infura and Alchemy have censored access to Tornado Cash in compliance with the sanctions.
Allegations Against the Founders and Optional Compliance Tool
The DOJ’s indictment claims that Storm and Semenov designed Tornado Cash with privacy features while knowing it would be used for illicit purposes. They allegedly maintained control over the service and could have implemented anti-money laundering features but chose not to. Another co-founder, Alexey Pertsev, was arrested last year and awaits trial on money laundering charges. The founders created an optional compliance tool, but it did not collect any anti-money laundering or know-your-customer information.
References to Hacks and Token Manipulation
The DOJ also alleges that the defendants were aware their service was being used to launder funds from hacks, including the KuCoin and BitMart hacks. They declined assistance from exchanges when approached. The DOJ mentions messages from Semenov discussing the need to pump the price of the TORN tokens tied to Tornado Cash. After the service was sanctioned, Storm distributed $2.6 million to each founder and instructed them to transfer the funds to new addresses.
Closing Remarks
The arrests of the Tornado Cash developers come shortly after a federal judge ruled that the sanctions imposed by OFAC did not infringe upon the rights of crypto investors and developers. This case serves as a reminder that money laundering through cryptocurrency transactions is illegal and will be prosecuted.
Hot Take: The charges against the developers of Tornado Cash highlight the challenges of regulating decentralized services. Despite sanctions and limited access, the open-source nature of the software allows for the creation of similar programs. This case also underscores the importance of implementing strong anti-money laundering measures in the cryptocurrency industry.
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