In the wake of the Tornado Cash sanctions, individuals launched at least two court cases to contest the legality of these measures. One of these lawsuits, funded by Coinbase Global, was filed by six individuals in the U.S. District Court in Austin, Texas. U.S. authorities have accused two individuals believed to be responsible for the decentralized cryptocurrency mixer Tornado Cash of collaborating to transfer illicit funds and violate U.S. sanctions.
The U.S. Attorney’s Office for the Southern District of New York released the charge on Wednesday. It identifies Roman Storm and Roman Semenov as suspects due to their alleged involvement in initiating, operating, and promoting Tornado Cash, a platform that enables users to trade coins without being traceable.
In August of last year, the U.S. Treasury Department imposed sanctions on Tornado Cash for allegedly transferring more than $1 billion in virtual currency, including significant proceeds from hacking activities attributed to the Lazarus Group—an officially sanctioned North Korean cybercrime organization.
On Wednesday, authorities arrested 34-year-old Roman Storm, hailing from Auburn, Washington, in the state of Washington. A court appearance in a federal court situated within that state is scheduled for him. Roman Semenov, a 35-year-old Russian national, remains at large, and the U.S. Treasury Department imposed sanctions on him due to suspected involvement with Tornado Cash.
Brian Klein, a partner at the law company Waymaker and Storm’s lawyer, said that Storm has been helping with the investigation for the past year and that he has not done anything wrong. Klein expressed frustration over the charges against Storm, highlighting that the legal handling of the case could negatively impact all software writers. Klein also said, “There’s more to this story, which will come out at the trial.”
Authorities arrested Alexey Pertsev, believed to be the third co-founder of Tornado Cash, in the Netherlands last August on charges related to money movement. Pertsev is currently under house arrest in the Netherlands, awaiting his hearing. When asked for a reply, Pertsev’s lawyer did not respond right away.
Despite the takedown of the Tornado Cash website, access to it can still be obtained through specific online records.
What we know about the case:
The case is still going on. It is being led by the FBI’s New York field office with help from other organizations. James Smith, who is in charge of the office as an assistant director, said that agents are trying hard to find Semenov. As thieves keep looking for new ways to hide and wash their dirty money, like with cryptocurrencies or mixers, the FBI is changing its strategies to keep up.
“You can expect to see more cases like this in the future,” Smith said.
Prosecutors say that Storm and Semenov built the most important parts of Tornado Cash, paid for the infrastructure it needs to work, and promoted the platform as a way to make private and untraceable financial transfers. The government says that they made a lot of money by running Tornado Cash.
Prosecutors also said that Storm and Semenov chose on purpose not to use required “know-your-customer” or “anti-money laundering” measures, even though victims of hacking had complained and asked for help. They were aware that people were using the service to hide money.
The investigators have said that the Lazarus Group used the service in April and May of 2022 to wash the money they got from hacking, which was against U.S. sanctions. The co-founders allegedly modified the service to indicate compliance with the penalties, but they reportedly confessed privately that the alteration was ineffective.
Both Storm and Semenov face allegations of collaborating to conceal money and violate U.S. sanctions. They also stand accused of jointly operating an unlicensed money transfer business. If proven guilty, they could face a combined maximum prison term of 25 years.
About a year ago, when authorities imposed penalties on Tornado Cash, it significantly impacted the bitcoin community. The announcement of the sanctions caused turmoil in the crypto market as millions of dollars’ worth of digital assets became untradeable due to the sanctions.
Some people in the autonomous banking sector thought that this move was too much government control.
After the Tornado Cash sanctions, Coinbase Global financed one of the two court cases initiated to challenge the legality of these actions. This case was filed by six individuals in the U.S. District Court in Austin, Texas. They sought the lifting of the platform’s restrictions. But the lawsuit didn’t work out because a federal judge agreed with the government’s choice to keep the sanctions in place.
This resulted in the dismissal of the plaintiffs’ claims.