AML | Aug 24, 2023

Image: Unsplash/Alexander Grey

In a significant crackdown on cryptocurrency-related crimes, the U.S. authorities have charged the founders of Tornado Cash, a cryptocurrency mixing service, for their alleged involvement in laundering over $1 billion, including funds for North Korean hackers.

• The founders of Tornado Cash, Roman Storm from Washington state and Roman Semenov, a Russian national, have been indicted on charges of conspiracy to commit money laundering, sanctions violations, and operating an unlicensed money transmitting business.
• Tornado Cash, established in 2019, was designed as a “mixer” to obscure cryptocurrency transaction trails. However, it’s alleged that the platform was used to launder more than $1 billion, including over $455 million stolen by the Lazarus Group, a North Korean cybercrime organization.

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• While the founders publicized their platform as a privacy-focused service, U.S. Attorney Damian Williams stated that they were aware of their assistance to hackers and fraudsters in concealing illicit funds.
• Roman Storm has been arrested, while Semenov remains at large. Another co-founder, Alexey Pertsev, is facing legal repercussions in Amsterdam.

Tornado Cash’s Operations and Sanctions

• The platform’s decentralized nature was emphasized by Semenov in a 2022 interview, where he mentioned the protocol’s design to be “unstoppable.”
• Tornado Cash had previously faced sanctions from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) in 2022 for its role in laundering over $7 billion in cryptocurrency.

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• The platform operated without the necessary know-your-customer (KYC) or anti-money laundering (AML) programs as mandated by U.S. law. Furthermore, they provided users with tips to maintain anonymity, such as using Tor or VPNs and employing different IP addresses for transactions.

Broader Implications

• The indictment of Tornado Cash’s founders underscores the challenges and risks associated with the cryptocurrency sector. As digital currencies gain traction, regulatory bodies worldwide are intensifying their efforts to curb illegal activities and ensure transparency and accountability in the crypto space.

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