Regular users of Tornado Cash are deprived of basic privacy on the blockchain as a result of U.S. … [+]
Roman Storm and Roman Semenov, who co-founded Tornado Cash, have been charged by the U.S. for their involvement in creating and developing this blockchain privacy tool.
The co-founders are facing counts of conspiracy to commit money laundering, conspiracy to violate sanctions, and conspiracy to operate an unlicensed money transmitting business, according to the Department of Justice indictment, unsealed on August 23, 2023. The two first charges carry each a maximum prison sentence of twenty years, while the last one only 5 years.
This indictment comes a year after sanctions were imposed by the U.S. Treasury on Tornado Cash and the arrest in the Netherlands of their third co-founder, Alexey Pertsev, for alleged money laundering related to his involvement in the project. Pertsev, released after nearly 9 months of jail, is awaiting trial.
Roman Storm Day Trip To Jail
Storm, located in the U.S. was arrested by the FBI and the IRS. According to his lawyer, Brian Klein, Storm’s arrest came at a surprise since he was cooperating with the authorities and denies any criminal conduct. Storm was shortly after released on bail.
Brian Klein, an all-star crypto criminal defence attorney, previously represented Virgil Griffith, an Ethereum developer who has been convicted of sanctions violations. As a result of a conference in which he spoke in North Korea without permission, Griffith has been sentenced to over five years of prison in 2022.
Roman Semenov, The First Sanctioned Crypto Developer
Concurrent to the unsealing of the indictment, the U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned Semenov for his role in allegedly providing material support to Tornado Cash and to the Lazarus Group, what the U.S. considers to be North Korean state-sponsored hackers. The Treasury claims that the Lazarus Group provided using Tornado Cash revenue to North Korea to support its ballistic missile and nuclear weapons program, to which the U.S. is opposed.
All property and assets of Semenov in the United States or controlled by U.S. persons must be blocked and reported to OFAC. Shortly after the announcements, Semenov’s Ethereum addresses listed by the Treasury were blacklisted and USDC
USDC
It is said that Semenov is currently in Dubai. UAE is known not to extradite individuals to the U.S. However, it is yet to be seen whether there will be an international arrest warrant against Semenov, whether this will lead to his arrest and whether an extradition request will follow. Absent any extradition treaty between these two nations, the extradition request can still be filed by the U.S. with slimmer chances of success, perhaps even under the United Nations Convention against Transnational Organized Crime, to which both nations are a party thereof. It’s worth noting that North Korea has also ratified this convention. In an attempt to increase cooperation between the two countries, the UAE and the U.S. have signed in February 2023 a bilateral mutual legal assistance treaty, to enhance evidence sharing, judicial cooperation and assistance in criminal investigations and prosecutions in some specific fields.
Presumed Innocent Unless Proven Guilty
The case has not been judged yet and therefore the allegations in the indictment are merely accusations. As a result, the defendants are presumed innocent unless and until proven guilty in a court of law, as opposed to a court of public opinion. The facts laid in the indictment are only part of the case against the defendants. We should expect more information to be released as the case proceeds up until the actual trial. The prosecution never lays out all its cards at an early stage as part of its usual strategy to gather more information and put pressure on the parties to plead guilty or incriminate themselves and others.
U.S. authorities have waited more than a year after the sanctions imposed on Tornado Cash and the arrest of Pertsev to sanction Semenov and arrest Storm, less than a week after the decision of the Texas district judge in favor of the sanctions by the U.S. treasury. It is unclear how long the indictment remained sealed and why the authorities acted on that specific day.
In what could be seen as a strategy deployed by the U.S. government on multiple fronts, the Texas decision laid the ground for a novel argument raised by the authorities against the co-founders, namely that they were operating an unlicensed money transmitting business.
All analysis of the case at this stage are premature and subject to change as it proceeds. Nonetheless, crypto twitter and crypto lawyers have been dissecting all the materials published, among a wave of outrage and disconcert following this unexpected development regarding Tornado Cash.
All Eyes On The Indictment
The crypto space seemed on hold yesterday after what was deemed by Collins Belton, a seasoned crypto attorney, as “arguably the most significant legal action that has occurred in crypto.”
Amongst many others, Jake Chervinsky, Chief Policy Officer at the advocacy group Blockchain Association, defends code as speech and qualifies the indictment as a direct attack against the open-source development space.
This case may have consequences beyond the faith of the Tornado Cash founders because of the novel argumentation of the operation of an unlicensed money transmission it puts forward. One such consequence could be the self censorship of developers who will not write code for privacy centric blockchain software by fear of liability. Rebecca Rettig, Chief Legal and Policy Officer at Polygon Labs, points out that this case is materially not about free speech nor are Storm and Semenov accused of simply having written code. Rather, the case is about their alleged centralized service’s involvement in a “scheme.”
Peter Van Valkenburgh, Director of Research at CoinCenter, an advocacy group that has a case pending against the OFAC sanctions on Tornado Cash, was quick to identify that factual allegations of unlicensed money transmission conflict with FinCEN’s longstanding 2019 Virtual Currency Guidance that an “anonymizing software provider is not a money transmitter”.
Even within the government, it seems that offices disagree. Patience is key since only time will tell the future of public blockchain privacy software.
