Aug 24, 2023

Two Tornado Cash developers face allegations of money laundering and sanctions violations.

Video transcript

The State of crypto is presented by Tron connecting the world to the power of Cryptocurrency here with more legal reaction is Tully and Vice criminal defense attorney Joseph Tully. Welcome to the show, Joseph. Uh Thank you so much for having me. Good morning. Of course, thanks for being here. Now, we just heard Nick kind of lay out what's happening here with tornado cash. Uh Curious to get your thoughts on the developments. What do you make of these two? Um Well, the one arrests and the other developer being charged? Well, um I, I think that this is sort of um in along the same lines of uh law that we've seen starting with Napster, uh Bittorrent. Um you know, along those lines where developers are being charged, even even Silk Road, um for things not that they did, but because they open the door, so to speak for illegal activity. Um I think that, uh you know, I I it clashes with the law in some ways and that some of the questions that were raised um in the previous segment, uh you know, can someone be charged for something that they didn't do? And the answer is no, the law clearly requires them to do something. There needs to be a mental component and, and an action component and you need to either have a criminal intent or a criminal conduct and this trial will raise a lot of those questions. All right. Ok. Um, you know, this is gonna be a tricky trial and I just want to get a sense from you what this could potentially mean for the decentralized space. Uh, and, and what repercussions it would have. Uh, you just said that while you're leaning towards the, the need to prove intent and action, but that's clearly not what the government and the authorities seem to believe. Well, they're taking, they're taking the law and sort of stretching it. So they, those are fundamentals. They do have to prove that they have to say that, you know, look, they're saying that they didn't have any control, but here's the areas where they did have control and because of their actions, you know, they knew that criminal activity would happen and, and they let it go anyway or, um, they say they didn't have control but they could have stopped illegal activity by doing XY and Z and they failed to do that. So that will have to be a component of the case. But, I mean, you're, you're, you're correct in that they're, they're stretching the law and applying it to people that off the cuff. It doesn't make sense to Yeah, but just, just one thing out here, you already had a judge that has said that a privacy mixer is an entity and that in effect can be read and interpreted in legal interpretation as well. They knew what they were doing and that was an action by an entity. And therefore this is, you know, something like breaking the law agreed. Yes. Um So it, so what I'm saying is sorry what I'm saying? It's not stretching the law because the judge has agreed with them in a way already. Well, sure. Um but did these guys go and say, hey, let's go rob a bank? No. Um Did they say, hey, let's go rob a bank and then carry it out? No. Um They, they, they're coders, they created a platform again, it, it's sort of along the lines of a, of a nap store of a or Silk Road where they're not actually really participating in criminal activity, but they're accused of opening the door where they could have done something about it, should have done something about it and they failed to do something about it. That is a language that you will hear from the government in opening statement throughout the trial and in closing, how should other developers working on D five projects be watching this case? Is there a cause for concern for, for any developer who's working on AD five project? Given that we don't have a lot of clarity on you know, what regulators or, uh, law enforcement is gonna come down on. I, I think people should be concerned and then if, if I was, if you were my client in, in my office and we were speaking privately, I would say, look rich people don't like, see and control, you know, people who have money who have power don't like giving it up. And so really what we're kind of up against the unspoken truth of what's going on here is that, you know, this new technology um is threatening to people who have money and power and um when people who have money and power are threatened, they're going to strike back. And I think some of the novel theories that we're seeing here is because of that. So I think kind of taking that concept and, and extrapolating it when you're developing something, I, I would be very, very careful that you can't be accused of. Listen, you created a tool that lets people do something illegal and you didn't do anything about it. I think you have to stay on top of it and insulate yourself if you are a developer, um from any way that you could be accused of doing something improper, I just want to get into the, the other case. Uh The FTX case, uh the SPF one we kind of know about, uh we'll get into that in a bit. But first question, do you think that generally there has been this disproportionate attention to the FTX case uh when you compared to the tornado case, given potentially the tornado case is more dangerous in repercussions for the entire ecosystem. Well, I, I think that, you know, in terms of looking at, at how the press treated something, um, he's got SPF he's kind of this larger than life figure. He has this messy hair. He, he looks uh interesting to put on camera. II, I think that's one thing I think that the average person, um, you know, lost money in FTX, it was a tangible asset. Whereas the tornado case, it might have opened the door to some illegal activity, maybe some dangerous activity. But in terms of an actual pocketbook, I don't know anyone who's lost money because of tornado, but I do know people that lost money in FTX. So I think when people have lost money and there's political connections, then I think you're always going to get media attention on that. Let's talk a little bit more about Sam Bagman Fried. Now this week, his defense team published a letter showing that they're going to lean on acting in, on the acting in good faith defense. So, what do you make of this defense? Do you think it's gonna work out for him? Well, it, it would be the reason why we don't hear about it a lot is because it's, it's pretty rare in the sense that it's dangerous when you go with I'm going to blame the lawyer. Um, then it opens the door to all of your attorney client communications, which are normally sacred and, and confidential they can't be disclosed in court. You open the door to that so all of that can come in so the lawyers can now say, hey, look, we were doing the right thing. He told us Xy and Z, um, that's why we gave him this. So, um, going back to what we were talking about before, in terms of the government for criminality, they have to improve either a criminal intent or criminal conduct. And here if they go, um, the, the blame, the lawyer defense is will counter the criminal intent element. And if you counter one element of a charge, the whole thing gets thrown out. So what they're, what they're trying to say is, look, he didn't have any criminal intent. He relied on lawyers, they gave the thumbs up the ok for this activity to happen and he had no idea that it was illegal. So, therefore you must vote not guilty on this charge. That's where they're going with it. Yeah. Yeah. Yeah. Uh I just, ok, this might be slightly controversial because I'm trying to understand who's actually given it this title of, uh, this, this defense, which is a vice of counsel defense. That's the title that's been given, right? Like who's actually given it that? Because even in the letter, what you see is SPF addresses it on the courts and effectively says that, uh, well, the prosecution is calling our defense an advice of counsel defense. And then he goes on to say something else in the letter, which is very interesting. And because this is a legal jargon, I just wanted to get your interpretation of this. Uh, that letter refers to a previous case, Harvard we sec. And in that, it, it, it was judged back then that reliance on the advice of counsel need not be a formal defense. It's, it is simply evidence of good faith, a relevant consideration in evaluating a defendant signed here. Now, what I mean by that is that does this mean that the advice of counsel is just a label being used? And that SPF is actually not going to use this as a defense strategy, but to say that what my intent was good and that he has more than just this as his, as his defense strategy. Does that make sense? Yes. So, um I think that he won't be limited by this defense. I think this is one arrow in his quiver, so to speak. So I think that um it really is just a label. So I think in that same letter in another area, they say, look, this isn't really even yes. As you said, a formal defense, this is just something that people use in order to counter C which is really the mens RAA which is another way of saying, did someone have criminal intent in their mind? And again, if you say, look, I ran this by lawyers, they gave it the, ok, I didn't have criminal intent. Um, how is it that, um, the, the letter makes reference to both in coun in house counsel and outside counsel? Meaning lawyers that work specifically for the company. And then, uh, when you hire attorneys from outside your company, that, that's outside counsel. So he's saying, look, I, I consulted with, uh, in house counsel for, for this and outside counsel and everybody gave it the approval. I thought it was legal. I didn't think I was doing anything wrong. Therefore, this charge does not apply to me. All right, Joseph. And yesterday, a federal judge granted Sarid's lawyers permission to meet with him in prison. I believe they said that they can have an unlimited amount of visits. Is this normal in a case like this? Well, it, it should be normal in all cases. But really what you're seeing here is that a lot of times jails in prison make things very difficult for an attorney to meet with a client. In other words, people, and I don't even think it's related to the prosecution, but you show up to the jail, you show up to the prison. You say I want to meet my client. I'm an attorney, here's my credentials and they kind of give you a hard time. They make you jump through a lot of hoops and then when that happens, uh, and it's impacting your ability to represent your client. You have to bring your concerns to the judge and what we're seeing here is a judge saying, yes, you should be able to meet with your client. Yes, it should be unlimited. Um, it, it has to be within reason. Um, so, but, but yeah, you're seeing a judge sort of, uh, have to intervene and to make sure that the proper attorney client relationship can happen. All right, Joseph, we're gonna leave it there. Thanks so much for joining the show and sharing your thoughts on Tornado Cash and Sari. Thank you so much for having me. Have a great day. That was Tully and Vice criminal defense attorney Joseph Tully.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.