Co-founders of Tornado Cash, Roman Storm and Alexey Pertsev, have established the JusticeDAO fund to raise money for legal representation.
2024 is the year that will define the rest of my life.
Honestly, I’m scared. But also hopeful that this community cares with a passion.
Please donate towards my legal defense.https://t.co/dQ7SCBesIm pic.twitter.com/0jeievSUxc— Roman S (@rstormsf) January 22, 2024
“2024 is the year that will define my entire life. Honestly, I’m scared. But I also hope that the community cares passionately about us. Please donate to my defense,” wrote Storm.
The initiative received support from former NSA and CIA employee Edward Snowden, who stated, “Privacy is not a crime.”
If you can help, please help. Privacy is not a crime. https://t.co/R4vauNLRB4
— Edward Snowden (@Snowden) January 23, 2024
Coinbase’s Chief Legal Officer Paul Grewal also highlighted the issue. According to him, the exchange’s team proposed amendments to the U.S. Treasury’s bill on crypto mixers.
We filed comments today on @USTreasury’s proposed rule on crypto mixing. @coinbase supports effective regulations, but not bulk data collection and reporting requirements for all transactions involving any crypto mixing–even with no indication of suspicious activity. 1/6
— paulgrewal.eth (@iampaulgrewal) January 22, 2024
“We do not see a regulatory gap here. Exchanges like ours are already required to investigate and report suspicious activity related to digital asset mixing on our platform. Why does the Treasury now need us to report on non-suspicious activity?” noted Grewal.
Moreover, according to the Coinbase lawyer, the department’s rules do not include a minimum threshold of funds sent, after which an investigation must be initiated. He believes this approach will simply lead to mass reporting of non-suspicious transactions.
Meanwhile, the U.S. Congress stated that the Treasury’s proposal to monitor crypto mixers is a “waste of time,” Grewal emphasized.
The Fate of the Developers
In August 2022, the OFAC added the Tornado Cash website to its sanctions list, alleging that criminals laundered over $7 billion in cryptocurrency through it. More than $455 million of this was linked to the North Korean hacker group Lazarus Group.
That same month, Dutch authorities arrested developer Alexey Pertsev on suspicion of involvement in money laundering and concealing criminal financial flows. He denied all charges but was nonetheless imprisoned pending trial.
In April 2023, Pertsev’s pre-trial detention was changed to house arrest.
In August, the U.S. Department of Justice charged two more co-founders of the crypto mixer, Roman Storm and Roman Semenov, with money laundering and sanctions violations.
According to Storm, FBI agents broke into his home early in the morning and arrested him in front of his young daughter. Subsequently, the Tornado Cash co-founder was detained, and he pleaded not guilty to any of the charges.
Later, Storm’s lawyer reported his release on bail. According to the lawyer, the prosecutors’ approach in the client’s case signifies “dangerous consequences” for all software developers.
Semenov remains free, but OFAC has added him to the sanctions list.
A representative of a law firm, speaking anonymously to ForkLog, stated that the responsibility for proving the developers’ guilt lies with the law enforcement agencies of the Netherlands and the U.S. However, at present, the convictions against Pertsev and Storm have not yet been finalized.
“There is no established case law in the Netherlands regarding decentralized autonomous organizations, and the prospects for the [lawyers’] team in court depend on the evidence gathered by the prosecution,” the source emphasized.
According to him, the Dutch criminal code contains several offenses that may relate to money laundering. The most relevant is article 420bis, which provides for a penalty of a fine or imprisonment for up to six years:
“Based on the situation described, even if the developer is found guilty of money laundering, in my opinion, he will not receive the maximum penalty provided by the above article, as the [crypto mixer’s co-founder] is presumably not the organizer of the crime related to money laundering.”
The outcome of the case also depends on the classification of the DAO itself and the developers’ role in it, the source added. In many countries, such organizations can exist without being tied to a legal structure and not violate the law. However, in other jurisdictions, there is a risk of defining a DAO as a general partnership.
One of the key drawbacks of such a definition, according to the lawyer, is the liability of participants for each other’s actions, which could worsen the developers’ situation.
Julia Privalova, head of the FinTech & Crypto practice at DRC law firm, commented to ForkLog that the Tornado Cash team’s prospects in court depend on many factors, including the quality of the evidence presented and the effectiveness of the defense.
“Proving innocence will not be easy. The trial requires an in-depth examination of DeFi mechanics: analyzing how smart contracts work, the mechanisms ensuring transaction anonymity, and the role of these technologies in the financial sector. This will be important in determining the degree of responsibility developers have for the possible use of their platform for illegal purposes,” she added.
Privalova believes a key aspect of the case is the interpretation of the developers’ actions. The prosecution must determine whether they were merely creators of the technology or participants in illegal money laundering activities.
In turn, the crypto mixer’s co-founders are trying to prove that they acted as neutral technological specialists, developing tools to ensure transaction privacy, without intending to facilitate illegal activities.
Given the seriousness of the charges, the law firm representative does not rule out a sentence with actual prison time.
“Support from a well-known figure like Snowden attracts additional attention to the case, which could influence public opinion. Meanwhile, his financial support strengthens the defense’s resources, allowing for the hiring of more qualified lawyers and experts,” Privalova noted.
In her view, the situation highlights “the complexity of balancing blockchain innovation with compliance with legislation that is clearly lagging behind”:
“This case could set a precedent affecting the future development of decentralized technologies and smart contracts. There is a real threat to other developers, as they may face legal challenges if their technologies are used for illegal purposes.”
Andrey Tugarin, CEO of GMT Legal, also pointed out that “no country has established case law or clear legal regulation” regarding decentralized autonomous organizations and their creators. Therefore, the verdict is difficult to predict, but it will certainly set a precedent in the crypto industry and the DAO sphere, the expert believes.
According to Tugarin, both jurisdictions — the U.S. and the Netherlands — provide for severe penalties for money laundering and sanctions violations, up to imprisonment.
However, GMT Legal considers it unlikely that the Tornado Cash developers will face actual imprisonment even if they lose in court, as they presumably were not the organizers of the crime and did not profit from it.
“This case is yet another confirmation that authorities are seriously addressing the cryptocurrency sphere. They aim to regulate this market, as stated by the heads of the SEC and other government bodies. […] However, regulation must be clear, transparent, and understandable to all market participants. Specifically in the U.S., unfortunately, this is not yet observed, and chaotic attacks on crypto projects only harm the industry in the country,” Tugarin stated.
Meanwhile, the CEO of GMT Legal is confident that while the “rules of the game” for DAOs in the United States are not clearly defined, there are certainly risks for other developers of similar technologies.
According to the JusticeDAO website, Pertsev is suspected of “involvement in concealing criminal financial flows and facilitating money laundering through cryptocurrency mixing via the decentralized Ethereum service Tornado Cash.”
Storm faces two charges: conspiracy to launder money and conspiracy to violate the International Emergency Economic Powers Act. Each count carries a maximum penalty of 20 years in prison.
In November 2023, the Tornado Cash (TORN) token plummeted by 50% following its delisting from Binance.
Earlier, the California-based Bitcoin platform Swan Bitcoin warned users of indefinite blocking for direct use of crypto mixers. The company accused U.S. regulators of strict policies.