Tornado Cash: US indictment for crypto money laundering

The Tornado Cash mixing service is said to be obscuring the origin of Ethereum cryptocurrency. More than $1.4 trillion worth of coins have been laundered with it since 2019, with the most prominent users being criminals serving the North Korean regime. In total, however, more than 12,000 users are said to have used Tornado Cash. Anonymous money laundering is a thorn in the side of criminal prosecutors. Therefore, against them against three Russian-born men who are considered the founders. One of them, Aleksej Pertsev (Alexej Pertsev), was arrested more than a year ago in the Netherlands, where he will face trial. On Wednesday, the US Department of Justice released the indictment against the other two, Roman Storm and Roman Semenow.

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Storm is a US citizen and was arrested in Washington state. The US authorities could not get hold of Semenow. The US Treasury Department has placed this defendant on the sanctions list “for his role in providing significant support to Tornado Cash and the Lazarus Group,” a state-run hacking group in North Korea. North Korea laundered more than half a billion dollars in loot from cryptocurrency service hacks via Tornado Cash.

Unlike some other crypto money laundering services, Tornado Cash is decentralized and works using smart contracts on the Ethereum blockchain. Therefore, the service cannot simply be deactivated. As long as the Ethereum blockchain exists, Tornado Cash will probably continue to run as long as the smart contracts are not changed. Major decisions, including code updates, are made by stakeholders in the Tornado Cash DAO, a decentralized autonomous organization. Their voting rights holders are not necessarily known by name.

Telltale chats

Storm, Semenow and Pertsew are believed to be the founders and original programmers of Tornado Cash, respectively, who also attracted investors. At the beginning they each held around eight percent of the voting rights themselves, but through their partnership with an investment fund they had an even larger share of the votes. The US prosecutor’s office accuses the three of having controlled the service through their company Peppersec and benefited financially from it. The indictment document repeatedly quotes incriminating chat messages.

The three men did not verify Tornado users and the origin of their Ethereum deposits; From the point of view of the public prosecutor’s office, this is a violation of relevant regulations that serve to combat money laundering. Worse still, they would have advertised Tornado relevantly and given users tips on how to conceal transactions. Despite numerous complaints and requests for help from victims and crypto exchange operators, they failed to stop money laundering and deposits known to be stolen.

The user interface was anyway under the control of the three men, regardless of the DAO voting rights. The defendants also paid for the costs of the operation. “I wonder if everything is OK here from a legal point of view? Maybe it will reveal everything if we pay for Tornado from the Peppersec account,” the prosecution quoted Pertsew as saying in a chat message to Storm and Semenow.

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When the official pressure increased, they installed an optional tracking function. This allows lawful users to document their transactions in the money laundering service themselves if they wish – an obviously ineffective anti-money laundering measure.

Up to 45 years imprisonment

Legally, Storm and Semenow are charged with conspiracy to launder money, conspiracy to operate an unlicensed money transfer business and conspiracy to violate the International Emergency Economic Powers Act. The maximum penalty would be a total of 45 years in prison, plus forfeiture of all Tornado Cash proceeds to the US budget. The US procedure is called USA v. Storm et Semenov and is pending in the United States District Court for Southern New York under Case No. 23-CR-430.

The presumption of innocence applies to the three accused. Pertsev is preparing for his court trial under house arrest in the Netherlands, Semenow states Moscow as his place of residence in a social network. The three men said they deleted all of their cryptographic keys used to administer the service. In May, an unknown person is said to have stolen control of the DAO and thus Tornado Cash.

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