As a seasoned crypto investor and observer of the digital asset space, I’ve seen my fair share of controversial cases that have tested the boundaries of blockchain technology and its legal implications. The ongoing trial of Roman Storm, co-founder of Tornado Cash, is one such case that raises complex questions about decentralization, sanctions, and criminal responsibility.
Expert: Katherine Polk Failla, the presiding judge, has delayed the trial of Roman Storm, a co-founder of Tornado. Cash, a cryptocurrency mixing service. The high-profile case revolves around allegations that Tornado Cash facilitated money laundering and tax evasion by its users through anonymized transactions. It’s essential to clarify that while Tornado Cash itself is not legally responsible for the actions of its users, it does provide a platform for obscuring transaction origins, making it a focal point in these investigations.
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As a crypto investor following this case closely, I can understand why the co-founder of the infamous cryptocurrency mixer, Storm, has been granted a delay in the trial. The legal and factual intricacies involved are quite complex and novel, and the defense team has highlighted millions of pages of documents written primarily in Russian. Translating these documents is no small feat, adding significant time to the proceedings.
The government has continually provided large amounts of information in this case, including millions of pages of documents, some of which are in Russian and need to be translated, that the defense team is still working to understand.
Court filing
The prosecution argued that the Storm’s legal team was overstating their case, insisting they had sufficient opportunity to examine the documents for his defense.
I, as the analyst, can rephrase the given statement as follows: The court decided in favor of the crypto mixer developer and rescheduled the trial from September 23 to December 2. The judge expressed the need for more time to examine certain legal concerns brought forth by the defense.
Charges against Tornado Cash developers
In August 2023, approximately one year following the imposition of sanctions by US authorities against Tornado Cash, Storm was taken into custody. The charges levied against the company’s co-founder included criminal conspiracy and money laundering allegations, with an estimated illicit transaction value surpassing $7 billion.
Two additional crypto mixer developers, Alexey Pertsev and Roman Semenov, were recently apprehended by law enforcement. In May, Pertsev was officially convicted of money laundering involving $1.2 billion and given a five-year prison sentence. Despite appealing the verdict and requesting bail, his plea was denied by the court.
The founders of the mixer established the JusticeDAO Foundation to assist with legal processes. This organization has already gained support from notable entities including representatives of Coinbase crypto exchange and Edward Snowden.
American sanctions against Tornado Cash
In August 2022, the United States Treasury Department’s Office of Foreign Assets Control (OFAC) placed sanctions on Tornado Cash. This means that the cryptocurrency protocol and related digital wallet addresses have been added to the list of restricted entities. As a result, any property or assets associated with Tornado Cash within U.S. borders are now blocked. Citizens and residents of the United States are also barred from utilizing this service.
Based on American law enforcement reports, since its establishment in 2019, this mixer has facilitated the laundering of over $7 billion in ill-gotten cryptocurrency gains. Approximately $455 million of these funds can be traced back to the illicit activities of the North Korean hacking collective known as Lazarus Group.
Tornado.cash played a role in the laundering of over $96 million obtained by cybercriminals from the June 2022 Harmony network heist. Furthermore, approximately $7.8 million stolen during the Nomad cross-chain protocol hack was processed through this service.
Following this development, Coinbase initiated a legal action against the Treasury Department, Janet Yellen as its head, and Andrea Gacki in her capacity as OFAC Director. The lawsuit aimed to rescind the imposed sanctions on the mixer, with Paul Grewal, the exchange’s chief legal officer, announcing this move based on a statement from Coinbase’s CEO, Brian Armstrong.
As a seasoned financial analyst with extensive experience in the cryptocurrency industry, I strongly believe that Brian Armstrong’s decision to fund and support this challenge against the Treasury Department and OFAC’s sanctions on Tornado Cash is a bold move. His involvement in this issue underscores his commitment to upholding the principles of open-source software development and preserving financial freedom for all users, even those in the decentralized finance (DeFi) community.
— paulgrewal.eth (@iampaulgrewal) September 8, 2022
In Armstrong’s view, while the exchange’s position against unlawful actions was firm, he believed that the department went beyond the usual bounds by placing limitations on the entire technology, overstepping its jurisdiction.
Everything is not so straightforward
As an analyst, I would rephrase that sentence as follows: At the trial, the issue of whether the makers of a self-governing and decentralized platform could be held liable for its actions was under consideration.
From my perspective, the developers’ legal team maintains that the mixer service, Tornado Cash, was not deliberately established with the intention of facilitating illicit activities. The founders asserted that they were unaware of the criminals who utilized the platform for money laundering and had no ability to manage or seize user funds.
The Judge posed these queries to the prosecution team: What actions should Tornado Cash co-founders have taken upon discovering North Korean hackers were employing their cryptocurrency mixer? Additionally, she raised the point that if a service caters to thousands of users, can it be held criminally responsible for one user’s illicit activities?
Are the Tornado Cash developers guilty?
The debate over custody in this context has significantly influenced our assessment of whether a given tool or service is implicated in money laundering. Notably, one of the primary arguments put forth by defenders of Tornado Cash is that, given its decentralized structure, developers have no control over its illicit use, regardless of any safeguards they implement.
The ruling in the Pertsev case serves as a stark reminder, leaving us to ponder: Will developers of cryptocurrency platforms face accountability if their services are exploited for illicit purposes by any of their users?
Based on the declarations of American authorities, it can be inferred that should a developer’s code be exploited by criminals, they would consider him complicit, and his role is then treated as if he were concealing the ill-gotten gains of these criminals, regardless of his capacity to prevent their criminal activities.
When discussing the case of Tornado Cash, it’s essential to remember that its founders integrated two tools for regulatory compliance. The first one enabled users to reveal the origin of their funds to external parties on a voluntary basis. In contrast, the second tool was designed to adjust the web interface and prohibit deposits from Ethereum addresses known to be linked with illicit activities.
Based on my extensive experience as a cybersecurity expert and observer of the decentralized finance (DeFi) landscape, I firmly believe that developing decentralized, sustainable tools comes with immense responsibility. This is not just a legal or ethical issue, but a matter of principle.
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2024-07-17 18:54