Two founders of Tornado Cash have been accused of money laundering and sanctions violations. Roman Storm and Roman Semenov have been charged in a newly unsealed indictment, charging them with laundering more than $1billion in criminal proceeds.
Tornado Cash is a popular cryptocurrency mixer which is known for obscuring the origin of funds transacted through it. The allegation ties the two developers to their work with this privacy mixer that “facilitated” a lump sum amount in money laundering, including “hundreds of millions” for North Korea’s Lazarus Group.
The Wednesday indictment came at the hands of the Federal Bureau of Investigation, the Justice Department and the Internal Revenue Service’s Criminal Investigation unit. This joint-action has accused Storm and Semenov of choosing not to implement know-your-customer (KYC) or anti-money laundering programs as required by law. Instead, Tornado Cash advertised that the tumbler “provided untraceable and anonymous financial transactions”.
The Department of Justice has already arrested Storm while Semenov has not been apprehended yet. The latter has been sanctioned by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) alongside eight Ethereum addresses he allegedly controls.
Last year, the OFAC had sanctioned the Tornado Cash after allegations came up about Lazarus laundering the funds from multiple crypto hacks through it. The U.S. Attorney Damien Williams in a statement said that Tornado Cash and its operators “knowingly facilitated” money laundering.
Adding further, he said: “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.”
The other side, fought by Storm’s attorney, Brian Klein of Waymaker LLP has said the case hinged on a “novel legal theory”. According to him, Storm had just helped in the development of the software which was done based on a novel legal theory with dangerous implications for all software developers.
He added: “Mr. Storm has been cooperating with the prosecutors’ investigation since last year and disputes that he engaged in any criminal conduct. There is a lot more to this story that will come out at trial.”
Tornado Cash also has a third founder, Alexey Pertsev, who has not been mentioned in this action. However, he already faces trial in Amsterdam over his involvement with Tornado Cash.
While Tornado Cash is often used in a legitimate way by people to protect their privacy in the crypto market, it has also attracted a lot of attention from bad actors because of this anonymising feature that conceals the identity of the buyer. The crypto mixer has been used in a number of high-profile crypto heists in 2022. This list features the $615m theft of tokens from Ronin, a network supporting the non fungible token game Axie Infinity, and a $100m attack on US startup Harmony.
The DOJ has now accused the two founders for designing Tornado Cash with various privacy features like this despite being cognisant of the fact that their service would be used for illicit purposes.