U.S. Charges Two Alleged Founders of Crypto Platform Tornado Cash With Money Laundering
One of the co-founders, a Russian national, also now faces U.S. sanctions The U.S. Treasury Department sanctioned Tornado Cash last August., accusing it of laundering more than $1 billion in virtual currency. Photo: Luke MacGregor/Bloomberg News By Mengqi Sun Updated Aug. 23, 2023 5:32 pm ET U.S. prosecutors charged two individuals allegedly behind decentralized cryptocurrency mixer Tornado Cash, saying they conspired to launder illicit funds and to violate U.S. sanctions. The indictment, filed by the U.S. Attorney’s Office in the Southern District of New York and unsealed Wednesday, charged Roman Storm and Roman Semenov in connection with the alleged creation, operation and promotion of Tornado Cash, a platform that enables users to exchange cryptocurrencies with relative anonymity.
The U.S. Treasury Department sanctioned Tornado Cash last August., accusing it of laundering more than $1 billion in virtual currency.
Photo: Luke MacGregor/Bloomberg News
U.S. prosecutors charged two individuals allegedly behind decentralized cryptocurrency mixer Tornado Cash, saying they conspired to launder illicit funds and to violate U.S. sanctions.
The indictment, filed by the U.S. Attorney’s Office in the Southern District of New York and unsealed Wednesday, charged Roman Storm and Roman Semenov in connection with the alleged creation, operation and promotion of Tornado Cash, a platform that enables users to exchange cryptocurrencies with relative anonymity.
Tornado Cash was sanctioned by the U.S. Treasury Department last August. The U.S. accused it of laundering more than $1 billion in virtual currency, including hundreds of millions of dollars of hacking proceeds for the Lazarus Group, the sanctioned North Korean cybercrime organization.
Storm, a 34-year-old from Auburn, Wash., was arrested Wednesday in Washington state and will be presented in a federal court there. Semenov, a 35 year-old Russian national, remains at large and now also faces sanctions from the U.S. Treasury Department in connection with allegedly running Tornado Cash.
Brian Klein, who represents Storm in the case and a partner at law firm Waymaker, said Storm has been cooperating with the investigation since last year and contended that he wasn’t engaged in any criminal conduct.
“We are incredibly disappointed that the prosecutors chose to charge Mr. Storm because he helped develop software, and they did so based on a novel legal theory with dangerous implications for all software developers,” Klein said in a statement. “There is a lot more to this story that will come out at trial.”
The third alleged co-founder of the platform, Alexey Pertsev, was arrested last August in the Netherlands over money laundering charges. Pertsev is currently under house arrest in the Netherlands while he awaits trial. A lawyer representing him didn’t immediately respond to a request for comment.
The Tornado Cash website has since been deleted from the Internet, but it currently remains available through certain Internet archives.
Agents at the Federal Bureau of Investigation’s New York field office, which led the case along with other agencies, are working to locate Semenov, and the investigation is ongoing, according to James Smith, the assistant director in charge of the branch. As criminals look for new ways to hide and launder their illegal proceeds, whether through the use of crypto or mixers, the FBI’s approach is evolving with it, he said.
“You will see more cases like this going forward,” Smith said.
Prosecutors alleged Storm and Semenov created the core functions of the Tornado Cash service, paid for the infrastructure needed to run the service and advertised the platform as providing untraceable and anonymous financial transactions. They made millions of dollars in profits from running Tornado Cash, prosecutors said.
The prosecutors added that the two chose not to implement know-your-customer or anti-money-laundering programs as required, even after receiving complaints and requests for help from hacking victims and knowing that the service was used to launder money.
The service was used by the Lazarus Group to launder hacking proceeds in April and May 2022, violating U.S. sanctions, according to the prosecutors. Prosecutors said the co-founders implemented a change in the service so they could make a public announcement that they were compliant with sanctions, but agreed in private chats that the change wasn’t effective.
Storm and Semenov are each charged with one count of conspiracy to commit money laundering and one count of conspiracy to violate U.S. sanctions. They are also each charged with conspiracy to operate an unlicensed money transmitting business. They could each face a total of up to 25 years in prison.
The sanctions on Tornado Cash, which was imposed about a year ago, sent shock waves through the crypto world. In the days following the blacklisting, millions of dollars in digital assets were blocked from transacting in compliance with the order, and many in the decentralized finance sector expressed concern over what some characterized as excessive government pressure.
At least two civil suits were also filed in the months following the Tornado Cash sanctions to challenge the legality of the actions. One of the suits, filed by six individuals in the U.S. District Court in Austin, Texas, and financed by crypto exchange
Coinbase Global, recently lost its bid to remove the platform from the sanctions list. A federal judge rejected the plaintiffs’ arguments and agreed with the government to allow the sanctions to remain in place.Write to Mengqi Sun at [email protected]
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