Aug 24, 2023

Tornado Cash developers Roman Storm and Roman Semenov were charged with violating sanctions and helping exploiters launder more than $1 billion, including "hundreds of millions" for North Korea's Lazarus Group, according to a statement from the U.S. Attorney's Office of Southern District of New York.

Video transcript

Let's turn now to tornado cash. Some big news coming out of that platform, developers face allegations of money laundering and sanctions violations. Joining us now to discuss is Coindesk global policy and regulation. Managing editor Nick Day who is also the editor of Coin De State of crypto newsletter. Good morning, Nick. Good morning. All right, we have two more tornado cash developers who um are have had one has been arrested, I believe and you tell me what's going on with the other one. Yeah. So uh yesterday, the US Department of Justice announced that they had arrested Roman Storm and charged both him and Roman Semenov with money laundering and sanctions violation allegations. Uh basically alleging that uh because of their work on tornado cash, they are directly responsible for helping money launderers, criminals, rogue nations like North Korea, uh funnel funds through their, the, you know, the privacy mixer that they created and are therefore responsible for, you know, the effects of those uh money transmissions. Uh they have been charged uh as you said, Roman Storm has been arrested. Uh He is due to appear in a New York courthouse on September 6th. So obviously we will be covering that and we will be present there. Uh Roman Semenov, uh I haven't heard anything about yet. It seems he is still at large. So uh I guess TBD on what will happen with him. It's also worth noting that a third developer, Alexi Persa was arrested by Dutch authorities in the Netherlands last year and he remains uh you know, pending trial in there. Uh at that location, this is spell a complete like kind of doom for the decentralized world. There are definitely a lot of concerns. I think that the crypto world should have here. Um The biggest question is, you know, is someone who merely develops a smart contract and deploys it responsible for all activities tied to that smart contract, even after they've, you know, reportedly given up all control over it. The DOJ is alleging that, you know, the defendants had the ability to change tornado cashes protocols even after they got rid of the private keys to, you know, let them control the smart contract. I think we're probably gonna hear a lot about this during the actual trial or during the, you know, pretrial motions, but on the face of it, it, it does seem to be a, you know, pretty strong warning signal for uh you know, those developers in the industry who are thinking about creating, you know, whatever projects, even if it's not a privacy focused thing, just having a project where uh they are creating code that will be deployed and then used for, you know, whatever transferring funds, even if they're not controlling it. Nick, I, I believe a judge uh recently found that um in o cash's case, the dow can be seen as an entity. Talk to us about the significance of that. Yeah, so the timing is interesting, that was uh literally a week ago where a judge in Texas ruled that tornado cash um as you said was an entity. And so uh it was properly sanctioned by the US Department of Treasury sanctions watchdog. Um The background here is, you know, tornado cash was sanctioned by the US Treasury Department last year on allegations of laundering hundreds of millions of dollars worth of crypto for North Korea's Lazarus Group, which itself is a sanction entity. Uh There were a couple of lawsuits filed against Treasury because of the sanctions. This one funded by Coinbase and featuring previous employees and other developers and investors. Uh basically alleged that tornado cash was not an entity. So it was improperly sanctioned the sanctions violate first amendment rights, uh a couple other things and the judge basically said no, it was, you know, the Treasury Department did everything correctly here. You have no grounds you're in correct. Um The fact that we now see these arrests coming so soon after is, you know, it's suggestive. I mean, you know, kind of implies that we now have a legal, you know, kind of case president is really strong enough to support uh this idea that, you know, tornado cash uh can be held responsible for people who use it. All right, Nick, we are going to leave this conversation with you there. Uh Thanks for joining the show that was Coindesk global policy and regulation. Managing editor Nick Day. Don't forget to sign up for the state of crypto newsletter on coindesk dot com.

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