Lawyers flag inconsistencies in Tornado Cash case

The Coin Center, a nonprofit organization advancing and defending the crypto industry, said that the recent indictments against Tornado Cash’s co-founders run counter to FinCEN guidelines.

On August 23, the U.S. Department of Justice filed charges against developers Roman Storm and Roman Semenov on suspicion of money laundering. Storm was remanded in custody. Semenov remains free, but OFAC has placed him on the sanctions list.

According to Coin Center, the indictment states that the suspects “conducted transfers on behalf of the public” without registration with FinCEN. However, law enforcement did not provide any evidence that Storm or Semenov directly conducted transactions.

The only facts of the investigation, according to the lawyers, confirm only the development and provision of software for anonymizing transactions. Such activity does not contravene FinCEN rules and the Bank Secrecy Act.

“A provider of anonymizing software is not a money transmitter. The rules exclude from the definition those who provide only delivery, communications, or network access used to transmit funds,” the agency’s 2019 guidance says, on which Coin Center relies.

The prosecution asserts that the Tornado Cash co-founders paid for web hosting services, maintained the GitHub repository, and until May 2020 had full control over the platform’s smart contracts.

However, these actions do not contravene FinCEN rules either, as they do not constitute an unlicensed transfer of funds, rights advocates said.

Coin Center noted that the precedent with a crypto mixer could criminalise publishing software code in general.

In August 2022, OFAC added Tornado Cash to the sanctions list, through which, according to the agency, criminals laundered cryptocurrency worth over $7 billion. More than $455 million of them are linked to the North Korean Lazarus Group.

On 12 August, Dutch authorities arrested the developer Alexey Pertsev on suspicion of involvement in laundering funds and concealing illicit financial flows. Later, the court changed the measure of restraint to house arrest.

In the summer of 2023, the court denied a motion by Coinbase and investor groups to lift sanctions on Tornado Cash. The plaintiffs argued that authorities exceeded their powers.

During the trial over the legality of the blocking, the U.S. Treasury compared holders of the platform’s native TORN tokens with terrorists.