In a decisive move, U.S. government authorities initiated a crackdown on the architects behind the virtual currency mixer Tornado Cash this Wednesday. This development transpired mere days subsequent to a federal judge’s determination affirming the government’s prerogative to impose sanctions on the implicated individuals.
Roman Semenov, one of Tornado Cash’s triumvirate co-founders, found himself under the scrutiny of the Treasury’s Office of Foreign Assets Control. His alleged involvement in supporting the North Korean hacking entity, Lazarus Group, among other transgressions, led to the imposition of sanctions.
Simultaneously, the Justice Department unsealed an indictment, leveling charges of conspiracy to commit money laundering and operating an unlicensed money transmitting business against Semenov and his compatriot in Tornado Cash, Roman Storm. The latter was promptly apprehended by federal authorities on the same day.
Tornado Cash, along with analogous mixing services, orchestrates the amalgamation of diverse digital assets, blurring the lines between potentially ill-gotten gains and legitimately acquired funds. This stratagem serves the purpose of obfuscating the origin of pilfered funds, providing a cloak for illicit actors.
August 2022 witnessed the official sanctions against Tornado Cash, with accusations of aiding in the laundering of a staggering $7 billion worth of virtual currency since its inception in 2019. The Treasury alleges that Tornado Cash’s systems played a pivotal role in laundering over $96 million siphoned from the June Harmony blockchain bridge theft and the August Nomad crypto firm heist. In tandem, federal prosecutors brought charges against Semenov and Storm for contravening the sanctions imposed on Tornado Cash.
This punitive stance and subsequent arrest unfolded subsequent to U.S. District Judge Robert Pitman’s ruling on August 17, affirming the Treasury’s authority in sanctioning Tornado Cash. Notably, a consortium of cryptocurrency investors initiated legal proceedings against the Treasury in September 2022, positing that the sanctions exceeded the bounds of governmental authority.
The cryptocurrency industry vehemently opposed the sanctions, contending that they pose a threat to the unimpeded utilization of privacy software by Americans. The legal entanglements also ensnared the third co-founder of Tornado Cash, Alexey Pertsev, who faced arrest in the Netherlands in August 2022 on money laundering charges.
Recalling a precedent from May, the U.S. previously imposed sanctions on Blender.io, a North Korean digital currency mixing firm. The accusations against Blender.io implicated its role in laundering purloined virtual currency and abetting cyber crimes, including a colossal $620 million digital currency heist in March, marking the most significant incident of its kind to date.