The developers of the privacy mixer Tornado Cash, Roman Storm and Roman Semenov, have been arrested and charged with facilitating more than $1 billion in money laundering and sanctions violations tied to North Korea’s hacking group, Lazarus.
Tornado Cash and Lazarus Connection
Last year, Tornado Cash was linked to the North Korean hacking group Lazarus by the U.S. government. The Department of Justice (DOJ) alleges that the privacy mixer facilitated more than $1 billion in money laundering for the Lazarus Group.
Sanctioned by U.S. Treasury
The U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) sanctioned the mixer and developer Semenov last year after allegations that Lazarus laundered funds from several crypto hacks through Tornado Cash. Eight Ethereum addresses allegedly controlled by Semenov were also sanctioned.
Developers Accused of Facilitating Money Laundering
U.S. Attorney Damien Williams accused Tornado Cash and its operators of knowingly facilitating money laundering. Despite publicly offering a privacy service, the DOJ alleges that Storm, Semenov, and other co-founder Alexey Pertsev were aware of their service’s illicit usage.
Non-Implementation of Anti-Money Laundering Measures
The indictment claims that the founders could have implemented transaction monitoring or other anti-money laundering features. They also created an optional compliance tool that did not comply with anti-money laundering or know-your-customer regulations. The DOJ further emphasized that the founders made misleading statements to minimize their control over Tornado Cash.
Connection to Various Crypto Hacks
The DOJ alleged that Tornado Cash was used to launder money from hacks, including the KuCoin and BitMart hacks in 2020 and 2021. The indictment also mentioned the Axie Infinity Ronin Bridge hack. The developers declined to cooperate when approached by exchange representatives.
TORN Tokens and Price Manipulation
Tornado Cash’s TORN tokens were also part of the DOJ’s investigation, with Semenov allegedly seeking to pump the token’s price. Following the sanctions, Storm distributed $2.6 million in a stablecoin to each of the founders.
Conclusion: Ongoing Focus on Crypto Regulation
These arrests underscore the U.S. government’s increasing scrutiny of the crypto industry. Coming shortly after a federal judge ruled that crypto investors’ and developers’ rights had not been infringed by OFAC sanctioning Tornado Cash, the incident serves as a stark reminder that law enforcement is committed to curbing illicit activities within the cryptocurrency space.
A Treasury press release on Wednesday reaffirmed that Tornado Cash had been used for criminal purposes since its creation in 2019, including the obfuscation of hundreds of millions of dollars stolen by the Lazarus Group hackers.
The case highlights the urgent need for clear regulatory guidelines and compliance within the ever-evolving world of cryptocurrencies. It serves as a cautionary tale for those operating in the crypto industry, reiterating that all must adhere to the existing laws and regulations.
