Tornado Cash Founders Face Money Laundering Charges: How Much Privacy is Too Much?

Tornado Cash, a cryptocurrency mixer platform known for its privacy features, is, again, in the limelight for all the wrong reasons. The Southern District of New York unveiled an indictment against its founders, Roman Storm and Roman Semenov, centering on the platform’s alleged role in laundering over $1 billion:

“The charges in the Indictment arise from the defendants’ alleged creation, operation, and promotion of Tornado Cash, a cryptocurrency mixer that facilitated more than $1 billion in money laundering transactions and laundered hundreds of millions of dollars for the Lazarus Group, the sanctioned North Korean cybercrime organization.”

Complicating matters further is its associations with the Lazarus Group, a North Korean cybercrime entity that has been previously sanctioned by the US and had been tipped off by the FBI on August 22 in a warning of a $40 million in BTC sell-off.

Despite its positioning as a solution to privatize cryptocurrency transactions, Tornado Cash developer’s current charges brings its operations under scrutiny. The platform’s function as a cryptocurrency mixer played a pivotal role in what might be one of the most massive money laundering operations in the digital currency sphere, according to regulators:

“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.”

However, the underlying question remains: Where should the industry draw the line between technological advancement and ethical responsibility?

Privacy is a fundamental human right. The same goes for financial privacy.

If all the Tornado Cash devs did was write code, their arrest is an infringement on those rights.

— Coin Bureau (@coinbureau) August 24, 2023

Alexey Pertsev, another Tornado Cash developer, was arrested on August 10, 2022 in the Netherlands over alleged “involvement in concealing criminal financial flows and facilitating money laundering through the mixing of cryptocurrencies through the decentralised Ethereum mixing service Tornado Cash.”

He was kept in a Dutch prison while money laundering charges were waiting to be filed. On April 20, 2023, he was released on house arrest awaiting trial.

free the tornado cash devs.

overreach of federal authority.

cryptography is not a crime.

— scottlewis.canto➕ (@scott_lew_is) August 23, 2023

Let’s consider the duality of technology. Platforms like Tornado Cash offer private and necessary features in the crypto space. But the flip side is that their potential misuse cannot be ignored. So, where does responsibility lie?

While it’s easy to point fingers at creators and label them as enablers of bad actors such as the Lazarus Group, we must discern between creation and misuse. Most inventors can’t predict every twist and turn their inventions might take in the real world. Yet, pioneering technological advancements undoubtedly carries an inherent responsibility to foresee and address potential pitfalls.

By actively discussing new tech between developers, industry leaders, policymakers and the broader public, the industry can strike a balance between progress and values.

Moreover, integrating ethics right from the developmental phase is a practical necessity. If tech professionals collaborate with lawmakers during the development phase, many post-launch concerns can be addressed proactively.

This especially rings true when lawmakers are not following the own laws that they create.

Peter Van Valkenburgh pointed out in his recent oped with Coin Center that under FinCEN law, crypto mixers do not simply become a money transmitter based on who uses it, as “these activities are merely the communication and publication of software and data:”

“But does the indictment state any facts that actually show that the defendants engaged in any activities that qualify as money transmission under the relevant law?”

Profiting or advertising from software creation doesn’t necessarily equate to providing regulated financial services despite multiple Tornado Cast developers’ arrests, according to Van Valkenburgh.

Here are our initial thoughts on today’s Tornado Cash indictment. The factual allegations of unlicensed money transmission are in conflict with FinCEN’s longstanding guidance that an “anonymizing software provider is not a money transmitter.”

— Peter Van Valkenburgh (@valkenburgh) August 23, 2023

Will the industry be able find a balance that allows them to develop adequate privacy tools that satisfy lawmakers, or will it lead to every privacy-focused developer getting arrested?