Two founders of Tornado Cash were formally accused by US prosecutors today of laundering more than $1 billion in criminal proceeds through their cryptocurrency mixer.
As well as unsealing an indictment against the pair on Wednesday, the Feds also arrested one of them, 34-year-old Roman Storm, in his home state of Washington, and hauled him into court. Fellow founder and co-defendant Roman Semenov, a 35-year-old Russian citizen, is still at large.
As a cryptocurrency mixer, Tornado Cash is appealing to cybercriminals as it offers to provide them a degree of anonymity.
Tornado Cash was sanctioned by Uncle Sam a little over a year ago for helping North Korea’s Lazarus Group scrub funds stolen in the Axie Infinity hack. Additionally, the US Treasury Department said Tornado Cash was used to launder funds stolen in the Nomad bridge and Harmony bridge heists, both of which were also linked to Lazarus.
Storm and Semenov were both charged with conspiracy to commit money laundering and conspiracy to commit sanctions violations, each carrying a maximum penalty of 20 years in prison. A third charge, conspiracy to operate an unlicensed money transmitting business, could net the pair up to an additional five years upon conviction.
In the unsealed indictment [PDF], prosecutors said Tornado Cash boasted about its anonymizing features and that it could make money untraceable, and that Storm and Semenov refused to implement changes that would dial back Tornado’s thief-friendly money-laundering capabilities and bring it in line with financial regulations.
“Tornado Cash failed to establish an effective [anti money laundering] program or engage in any [know your customer] efforts,” Dept of Justice lawyers argued. Changes made publicly to make it appear as if Tornado Cash was legally compliant, the DoJ said, were laughed off as ineffective in private messages by the charged pair.
“While publicly claiming to offer a technically sophisticated privacy service, Storm and Semenov in fact knew that they were helping hackers and fraudsters conceal the fruits of their crimes,” said US Attorney Damian Williams. “Today’s indictment is a reminder that money laundering through cryptocurrency transactions violates the law, and those who engage in such laundering will face prosecution.”
What of the mysterious third founder?
While Storm and Semenov were the ones named on the rap sheet, they aren’t the only people involved with, or arrested over, their involvement in Tornado Cash. A third unnamed and uncharged person mentioned in the DoJ indictment referred to as “CC-1” is described as one of the three main people behind the sanctioned service.
Despite that, the Dept of Justice didn’t announce any charges against CC-1.
Clues point to CC-1 potentially being Alexey Persev, a Russian software developer linked to Tornado Cash who was arrested in The Netherlands shortly after the US sanctioned the crypto-mixing site. Persev was charged in that Euro nation with facilitating money laundering and concealing criminal financial flows, and is now out of jail on monitored home release awaiting trial.
Persev denies any wrongdoing, and claimed he wasn’t told why he was being detained. His defenders argued he shouldn’t be held accountable for writing Tornado Cash code since he didn’t do any of the alleged money laundering himself.
It’s not immediately clear if Pertsev is CC-1, nor is it clear why CC-1 wasn’t charged. We put those questions to the DoJ, and haven’t heard back.