Only a few days after a federal judge ruled that the government had the right to punish the co-founders of the virtual currency mixer Tornado Cash, U.S. government officials began taking action against them on Wednesday.
One of the three co-founders of Tornado Cash, Roman Semenov, a Russian citizen, was sanctioned by the Office of Foreign Assets Control of the Department of the Treasury for, among other things, allegedly assisting the North Korean hacking group Lazarus Group.
The Justice Department also unveiled an indictment against Semenov and Tornado Cash co-founder Roman Storm on Wednesday, accusing them of conspiring to commit money laundering, running an illegal money-transfer business, and other offences. Federal agents arrested Storm on Wednesday in Washington.
Semenov might be in Dubai right now.
Tornado Cash and other mixing services combine different digital assets, including money that might have been gained unlawfully and money that might have been obtained legally, to help criminals hide the source of the stolen money.
Having been accused of laundering billions of dollars’ worth of virtual money since its establishment in 2019, Tornado Cash was punished in August 2022. The Justice Department asserts that Tornado Cash enabled more than $1 billion in money-laundering transactions, including hundreds of millions for Lazarus Group, whose illegal operations, according to American officials, helped finance North Korea’s nuclear and ballistic missile programmes.
According to the Treasury, Tornado Cash systems were used, among other things, to launder more than $96 million taken from the thefts of the Nomad cryptocurrency enterprise in August 2022 and the Harmony blockchain bridge in June 2022.
Semenov and Storm were accused with breaking the restrictions placed on Tornado Cash by federal authorities.
They are quite offended that the prosecution chose to charge Mr. Storm because he assisted in the development of software, and that they did so based on a cutting-edge legal theory with potentially harmful ramifications for all software engineers, according to Brian Klein, an attorney at Waymaker LLP who represents Storm.
According to Klein, his client has been assisting the prosecutors’ investigation since last year and denies having committed any crimes.
The fines and arrest follow U.S. District Judge Robert Pitman’s ruling on August 17 that Treasury did not go beyond its legal powers when it sanctioned Tornado Cash. In September 2022, a group of cryptocurrency investors filed a lawsuit against Treasury, claiming that Treasury exceeded its jurisdiction when it sanctioned Tornado Cash.
The crypto sector vigorously opposed the penalties, arguing that they may be used to restrict American users’ access to privacy software.
Alexey Pertsev, a third Tornado Cash co-founder, was detained in August 2022 in the Netherlands on suspicion of money laundering.
Legal counsel for Semenov and Pertsev was unavailable for comment at the time.
The company Blender.io, which North Korea is accused of using to launder stolen virtual money and fund cyber crimes, was sanctioned by the United States last May.
The largest digital currency robbery to date, worth $620 million, is alleged to have been carried out by Lazarus Group with Blender’s assistance in March.
