Just 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 on Wednesday began taking action.
Roman Semenov, a Russian citizen and one of the three co-founders of Tornado Cash, was sanctioned by Treasury’s Office of Foreign Assets Control 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. Storm is from Auburn, Washington. Federal agents detained Storm on Wednesday in Washington.
Semenov might be in Dubai right now.
Tornado Cash and comparable mixing services combine diverse digital assets, maybe obtained unlawfully as well as legitimately, to allow criminals to conceal the source of the stolen money.
After being accused of laundering billions in virtual money since its inception in 2019, Tornado Cash was punished in August 2022. According to the Justice Department, 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 ballistic missile and nuclear weapons 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 also accused by federal authorities of breaking Tornado Cash’s sanctions.
Storm is being defended by Brian Klein of Waymaker LLP. He stated, “We are incredibly disappointed that the prosecutors chose to charge Mr. Storm because he helped develop software, and they did so based on a novel legal theory with dangerous implications for all software developers.”
According to Klein, his client has been assisting the prosecutors’ investigation since last year and denies having committed any crimes.
After U.S. District Judge Robert Pitman ruled on August 17 that Treasury did not overstep its authority when sanctioning Tornado Cash, the penalty and arrest followed. In September 2022, a group of cryptocurrency investors sued the Treasury, claiming the Treasury overstepped its bounds by banning Tornado Cash.
The cryptocurrency sector, which contended that the sanctions pave the way for limiting Americans’ use of privacy software, fiercely opposed the sanctions.
Alexey Pertsev, the third co-founder of Tornado Cash, was detained in the Netherlands in August 2022 on suspicion of money laundering.
There was no instant availability of Semenov and Pertsev’s legal counsel.