Analysts link Tornado Cash developer to Russia’s FSB

The Tornado Cash cryptocurrency mixer developer, Alexey Pertsev, previously worked for a company linked to Russia’s Federal Security Service (FSB). Fortune reports this, citing a Kharon analysis.

Today @FortuneMagazine featured Kharon’s recent piece on the sanctioned #cryptocurrency mixer #TornadoCash and how its developer — Alexey Pertsev — once worked for a company that was designated for providing support to #Russia’s FSB.https://t.co/p2Uy96Z5GO

— Kharon (@KharonData) August 26, 2022

On August 8, OFAC added to the sanctions list the Tornado Cash site, as well as 39 Ethereum addresses and 6 USDC addresses linked to it. According to the agency, since the service’s creation in 2019, it has facilitated money laundering of more than $7 billion in cryptocurrency. Some of the funds are linked to North Korea’s Lazarus Group.

On 12 August, Dutch authorities arrested the Tornado Cash developer on suspicion of involvement in laundering funds and concealing illicit financial flows through the mixer. Later it emerged that the person is a 29-year-old Pertsev.

The actions drew a response from the global crypto community, wary of a crackdown on open-source software. In Amsterdam, there was a rally in support of Pertsev; in defense of the Tornado Cash developers, Charles Hoskinson spoke, the founder of Cardano.

However, national-security experts say the public does not have full information about the reasons behind the U.S. government’s sanctions, the publication notes.

According to Kharon’s report, the mixer uses software developed by TraxSec, a Delaware-registered corporation. Pertsev is its founder and CEO.

In 2017 he worked as an information-security and smart-contracts specialist at LLC “Digital Security.” In 2018 the Russian Ministry of Finance designated the firm as providing material and technical support to the FSB since 2015.

«This guy worked at [“Digital Security”] and conducted tests to breach defenses himself. And then the Ministry of Finance designated the company as aiding the FSB in hacks», — said Nick Grotaus, Kharon’s vice president of research.

According to Alex Zerden, a senior fellow at the Center for a New American Security, the facts “raise big questions about trust in Tornado Cash developers”.

“This is quite deep information that explains why the U.S. government and Dutch authorities took certain actions”, — added he.

Dharma from Kharon starkly contrasts with the crypto-community’s reaction, which suspects only “ill intentions” on the part of authorities, Zerden noted.

Earlier, the industry rights-advocacy group Coin Center said that OFAC overstepped its authority in the matter of the mixer sanctions. Kraken CEO Jesse Powell described the regulator’s actions as unconstitutional and infringing on citizens’ right to privacy.

Representative Tom Emmer wrote to U.S. Treasury Secretary Janet Yellen, in which he called for explanations regarding the Tornado Cash restrictions.

«There are many reasons, justifications and considerations for how OFAC should identify sanctioned entities», — Zerden said.

Grotaus acknowledged that Kharon’s findings do not prove any fundamental motive for the regulator’s actions against Tornado Cash.

«There appears to be a more complex and intricate picture, the unravelling of which will take more time», — he concluded.

In May, OFAC added the crypto mixer Blender to the sanctions list, which did not spark a notable response from the community.

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