Tornado Cash is an open source, non-custodial, fully decentralized cryptocurrency tumbler that runs on Ethereum Virtual Machine-compatible networks. It offers a service that mixes potentially identifiable or “tainted” cryptocurrency funds with others, so as to obscure the trail back to the fund’s original source.
Tornado Cash developers, namely Roman Storm and Roman Semenov, have been formally accused of engaging in money laundering and violating sanctions regulations in connection to their involvement with the privacy-focused mixer. This mixer is purported to have enabled over $1 billion in money laundering activities, a substantial portion of which is believed to have benefited North Korea’s Lazarus Group. The apprehension of Storm by the Department of Justice (DOJ) has already taken place.
The privacy mixer, designed to obscure the true source of funds in transactions passing through it, was subjected to sanctions by the Office of Foreign Asset Control (OFAC) under the U.S. Treasury Department in the previous year. This action came in the wake of allegations asserting that the Lazarus Group employed the mixer to legitimize proceeds from several cryptocurrency breaches. In a parallel move, Semenov was also subjected to OFAC sanctions, a decision handed down on the same day, and this encompassed eight Ethereum addresses which purportedly fall under his control.
In an official declaration, U.S. Attorney Damien Williams conveyed that Tornado Cash, along with its principal operators, stands accused of knowingly supporting and promoting the illicit practice of money laundering:
“While publicly claiming to offer a technically sophisticated privacy service, Storm and Semenov in fact knew that they were helping hackers and fraudsters conceal the fruits of their crimes. Today’s indictment is a reminder that money laundering through cryptocurrency transactions violates the law, and those who engage in such laundering will face prosecution,” he said.
The U.S. government’s year-long endeavor to impose sanctions upon Tornado Cash has underscored the intricate challenge of fully halting a service positioned as “decentralized.” Developers have adeptly drawn upon the open-source code of Tornado Cash to propagate novel programs endowed with akin functionalities.
The fundamental bedrock of this blockchain-driven software, often referred to as “smart contracts,” which underpins the operations of Tornado Cash, retains its utility within the Ethereum ecosystem. Nevertheless, it’s essential to note that the employment of these smart contracts contravenes U.S. legal provisions, thereby rendering their utilization unlawful. Notably, pivotal providers of blockchain infrastructure such as Infura and Alchemy – platforms integral to the functioning of numerous applications interfacing with the Ethereum blockchain – have judiciously curtailed access to the Tornado Cash application in conformity with the prevailing sanctions regime.
The indictment also makes frequent references to Alexey Pertsev, another co-founder, who was arrested last year in the Netherlands, where he currently awaits trial on money laundering allegations.
The arrests on Wednesday occurred just shortly after a span of merely one week subsequent to a federal judge’s verdict that affirmed the absence of any violation of the rights of cryptocurrency investors and developers through the imposition of OFAC sanctions on Tornado Cash.
