- Crypto
- August 24, 2023
- 4 minutes read
U.S. Feds Indict Tornado Cash Founders For Money Laundering
The U.S. Justice Department has filed criminal charges against the founders of Tornado Cash, a popular cryptocurrency “mixer.” Crypto mixers…
The U.S. Justice Department has filed criminal charges against the founders of Tornado Cash, a popular cryptocurrency “mixer.” Crypto mixers mix different streams of cryptocurrencies to obfuscate their origins and owners. They help preserve crypto owners’ privacy but can be abused to launder tainted funds.
The U.S. government alleged that Roman Storm and Roman Semenov helped launder over $1bn in criminal proceeds by operating Tornado Cash without implementing know-your-customer (KYC) and anti-money laundering programs as legally required. Prosecutors claim the duo knew Tornado Cash was being used to launder criminal proceeds but failed to implement any controls to tackle the problem.
According to prosecutors, Tornado Cash helped the Lazarus Group, a sanctioned North Korean cybercrime organization, launder over $500mn in hacking proceeds.
Storm and Semenov were each charged with
- One count of conspiracy to commit money laundering;
- One count of conspiracy to violate the International Economic Emergency Powers Act;
- One count of conspiracy to operate an unlicensed money-transmitting business.
Storm, a Washington, U.S.A., resident, was arrested on Wednesday. Semenov, a Russian national, remains at large. A third co-founder, Alexey Pertsev, was arrested in the Netherlands last August and remained in jail until being released on bail this April. Dutch prosecutors accused Pertsev of facilitating money laundering via Tornado Cash.
Alongside his indictment, Semenov was sanctioned by the U.S. Treasury Department, barring U.S.-based persons or businesses from transacting with him. The Treasury Department separately sanctioned Tornado Cash last year, barring Americans from using the crypto mixing service.
According to the indictment, Storm, Semenov, and Pertsev launched Tornado Cash with a $900,000 investment from an unnamed California-based venture capital fund. At some point, they suggested creating a version of Tornado Cash compliant with anti-money laundering requirements, but investors at the venture capital fund “dismissed the idea.”
The Tornado Cash founders created a native token, TORN, for their mixing service. Tornado Cash users were required to buy TORNs to process their withdrawals, generating interest for the token. According to prosecutors, the three founders converted TORN tokens to over $8mn worth of U.S.-dollar pegged stablecoins via Binance, some of which they could cash out.
Binance, the world’s largest crypto exchange, is facing separate lawsuits from the U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The CFTC accused Binance of illegally offering derivatives products to U.S.-based customers, and the SEC accused Binance of operating an unregistered securities exchange.
- Storm and Semenov face many years in prison if convicted of the criminal charges.
