Are the Tornado Cash developers guilty?

Judge Katherine Polk Failla postponed the trial of Tornado Cash co-founder Roman Storm. What is going on in this controversial case and is the crypto mixer liable for its users?

Due to the complexity of the case, the co-founder of the notorious cryptocurrency mixer was granted a reprieve. Storm’s defense cited complex new legal and factual issues in its request to move the case, as well as millions of pages of documents written in Russian. All of them need translation, which means more time.

“The government has also consistently produced voluminous evidence in this case — millions of pages of documents, much of it in Russian, requiring translation — which the defense is still analyzing.”

Filing with the court

The prosecution said Storm’s lawyers had exaggerated the allegations and argued that his defense had had enough time to review the documents.

The court sided with the crypto mixer developer as a result and adjourned the hearing from September 23 to December 2. The judge stated that he needed additional time to consider some of the legal issues raised by the defense.

Accusations against Tornado Cash developers

Storm was arrested in August 2023, a year after US authorities imposed sanctions on Tornado Cash. The service’s co-founder was charged with criminal conspiracy and money laundering totaling more than $7 billion.

Law enforcement agencies also detained two more developers of the crypto mixer – Alexey Pertsev and Roman Semenov. In May, Pertsev was found guilty of laundering $ 1.2 billion and sentenced to five years in prison. He appealed the decision and asked the court to release him on bail, but the latter rejected such a request.

To assist with legal proceedings, the mixer’s developers created the JusticeDAO Foundation, through which they were supported by representatives of the Coinbase crypto exchange and Edward Snowden.

US sanctions against Tornado Cash

In August 2022, the U.S. Treasury Department imposed sanctions on Tornado Cash. The department’s division, the Office of Foreign Assets Control (OFAC), added the cryptocurrency protocol and associated digital wallet addresses to its sanctions list. The agency blocked all Tornado Cash properties within the U.S. and banned residents and citizens from using the service.

Since its inception in 2019, the agitator has helped launder more than $7 billion in illicit cryptocurrency proceeds, with more than $455 million of that linked to the activities of the North Korean hacker group Lazarus Group, according to U.S. authorities.

Tornado Cash was also used to launder more than $96 million that cybercriminals obtained in a June 2022 Harmony network heist. Additionally, at least $7.8 million stolen during the Nomad cross-chain protocol hack passed through the service.

Shortly thereafter, Coinbase filed a lawsuit against the Treasury Department, its chairwoman Janet Yellen, and OFAC Director Andrea Gacki, requesting that sanctions against the mixer be lifted. The exchange’s chief attorney, Paul Grewal, wrote about this, citing a statement from the company’s CEO, Brian Armstrong.

1/7
This morning, Brian Armstrong shared why Coinbase is funding and supporting a lawsuit filed by six individuals (including two CB employees) challenging the Treasury Department and OFAC’s new sanctions on open source software related to Tornado Cash. https://t.co/8l5iKAjVZg

— paulgrewal.eth (@iampaulgrewal) September 8, 2022

Armstrong said the exchange has taken a tough stance against illegal activity, but in his view, the department has taken the unprecedented step of imposing restrictions on all technology and has overstepped its authority.

Not everything is that simple

The court hearing discussed whether it was possible for the creators of a decentralized and autonomous service to be held accountable for their work.

The developer’s lawyers argue that the mixer was not created for criminal purposes. Tornado Cash’s founders knew nothing about the criminals laundering money and had no control over user funds.

The judge responded by asking prosecutors what they should have done if they learned that the Tornado Cash co-founders were using North Korean hackers’ crypto mixers. He also questioned whether a service could be held criminally liable if one of its thousands of users was found guilty.

Are Tornado Cash developers guilty?

The issue of oversight has long been critical to understanding whether a tool or service is responsible for money laundering. One of the key defenses in this case is that due to Tornado Cash’s decentralized nature, no matter what measures the developers take, they won’t be able to prevent it from being used illegally.

The decision in the Pertsev case was a warning, and now the question arises: will any developer of a cryptocurrency service used in illegal activities now be liable for every user?

The explanations from American authorities come to a simple conclusion: If a developer’s code is used by criminals, he becomes a criminal. From that point on, he is treated as if he were personally hiding the source of the criminals’ funds, regardless of whether he has the authority to stop the criminals.

What’s often forgotten in this case is that Tornado Cash’s founders implemented two regulatory compliance tools: one that allowed users to voluntarily disclose the source of funds to third parties, and another that changed the web interface to block deposits from Ethereum accounts associated with criminal activity.

Therefore, creating decentralized, sustainable tools makes the developer responsible forever. The court’s recognition that it was impossible to stop Tornado Cash did not change the judge’s decision to punish Pertsev.