The Tornado Cash indictments are being viewed by many as another tipping point for crypto, said Anand Sithian, a former financial crimes prosecutor now with Crowell & Moring. These are individuals who were allegedly helping North Korea with economic transactions, allegedly in aid of a nuclear weapons program. Those are really, really serious allegations.
The U.S. Department of Justice brought charges against Roman Storm and Roman Semenov, two of the co-founders of Tornado Cash, for conspiracy to operate an unlicensed money services business, conspiracy to commit money laundering, and conspiracy to violate the International Emergency Economic Powers Act. The DOJ alleged that Storm and Semenov created a program and user interface that allowed for malicious actors to launder up to $1 billion in crypto, including North Korea’s Lazarus Group.
The idea that they were in the business of making money off really bad actors [is] a compelling argument for a jury, said Sithian. It can help prosecutors provide a reason for why Storm and Semenov were working on Tornado Cash, as opposed to the more altruistic argument that they just wanted to defend privacy.
Craig Timm, a senior director of anti-money laundering at the Association of Certified Anti-Money Laundering Specialists (ACAMS), echoed this view, saying that prosecutors don’t need to prove a motive but prosecutors would typically share one anyway for the jury.
Coin Center, an industry group, took a competing view, saying the indictment’s allegations suggest that Storm and Semenov remained within parameters defined by the Financial Crimes Enforcement Network (FinCEN).
The details about exchanges that were hacked reaching out to the developers for assistance and being turned away may play a role in the case. Brian Klein, Storm’s attorney, said there was a lot more to this story in a statement last week.
The U.S. Treasury Department and Internal Revenue Service published their proposed regulation for the long-awaited broker definition from the 2021 Infrastructure Investment and Jobs Act. The proposal itself walks through a definition for the term broker, capturing centralized crypto exchanges, payment processors, some hosted wallet providers, some unhosted wallet providers, some decentralized exchanges, etc.
Treasury has kicked off a comment period that ends on Oct. 30, 2023, allowing the general public to weigh in and provide feedback – especially to some of the more controversial issues, such as the decentralized exchange component.
The case of Tornado Cash indictments is much more straightforward than initial reactions suggested. The charges against the three accused are very specific and this case may not be an indictment of the industry as a whole or a power grab over privacy tools. The DOJ seems to be specifically arguing that it was the user interface at issue, rather than the smart contract itself. Moreover, the DOJ seems to be arguing that Tornado Cash wasn’t decentralized, that it was a centralized entity running a website and trying to profit off of the service being provided. The U.S. Treasury Department and Internal Revenue Service proposed a regulation for the broker definition from the 2021 Infrastructure Investment and Jobs Act, which has kicked off a comment period that ends on Oct. 30, 2023.