U.S. Government Goes After Ethereum Privacy Tool Founders With Indictment And Arrest – Forbes

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Regular users of Tornado Cash are deprived of basic privacy on the blockchain as a result of U.S. … [+] sanctions against this popular privacy software.
Tornado Cash co-founders Roman Storm and Roman Semenov are facing multiple charges from U.S. prosecutors for their involvement in creating and developing the blockchain privacy tool used to allegedly launder more than $1 billion worth of cryptocurrency.
In a Department of Justice indictment, unsealed on Wednesday, the two facencounts of conspiracy to commit money laundering, conspiracy to violate sanctions, and conspiracy to operate an unlicensed money transmitting business. The two first charges carry each a maximum prison sentence of twenty years, while the last one only 5 years.
This indictment comes a year after sanctions were imposed by the U.S. Treasury on Tornado Cash and the arrest in the Netherlands of their third co-founder, Alexey Pertsev, for alleged money laundering related to his involvement in the project. Pertsev, released after nearly nine months of jail, is still awaiting trial.
Storm, located on U.S. soil was arrested by the FBI and the IRS. According to his lawyer, Brian Klein, Storm’s arrest came at a surprise since he was cooperating with the authorities and denies any criminal conduct. Storm was shortly after released on bail.
Brian Klein, an all-star crypto criminal defence attorney, previously represented Virgil Griffith, an Ethereum developer who has been convicted of sanctions violations. As a result of a conference in which he spoke in North Korea without permission, Griffith was sentenced to over five years in prison in 2022.
Along with the unsealing of the indictment, the U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned Semenov for his role in allegedly providing material support to Tornado Cash and to the Lazarus Group, what the U.S. considers to be North Korean state-sponsored hackers. The Treasury alleges that the Lazarus Group used Tornado Cash as part of efforts to financially support North Korea’s ballistic missile and nuclear weapons program.
All property and assets of Semenov in the United States or controlled by U.S. persons must be blocked and reported to OFAC. Shortly after the announcements, Semenov’s Ethereum addresses listed by the Treasury have been blacklisted and USDC USDC belonging to these addresses are now frozen.
It is said that Semenov is currently in Dubai. UAE is known not to extradite individuals to the U.S. However, it is yet to be seen whether there will be an international arrest warrant against Semenov, whether this will lead to his arrest and whether an extradition request will follow. Absent any extradition treaty between these two nations, the extradition request can still be filed by the U.S. with slimmer chances of success, perhaps even under the United Nations Convention against Transnational Organized Crime, to which both nations are a party thereof. It’s worth noting that North Korea has also ratified this convention. In an attempt to increase cooperation between the two countries, the UAE and the U.S. have signed in February 2023 a bilateral mutual legal assistance treaty, to enhance evidence sharing, judicial cooperation and assistance in criminal investigations and prosecutions in some specific fields.
The case has not been judged yet and therefore the allegations in the indictment are merely accusations. As a result, the defendants are presumed innocent unless and until proven guilty in a court of law, as opposed to a court of public opinion. The facts laid in the indictment are only part of the case against the defendants. We should expect more information to be released as the case proceeds up until the actual trial. The prosecution never lays out all its cards at an early stage as part of its usual strategy to gather more information and put pressure on the parties to plead guilty or incriminate themselves and others.
U.S. authorities have waited more than a year after the sanctions imposed on Tornado Cash and the arrest of Pertsev to sanction Semenov and arrest Storm, which took place less than a week after the decision of the Texas district judge in favor of the sanctions by the U.S. treasury. It is unclear how long the indictment remained sealed and why the authorities acted on that specific day.
In what could be seen as a global strategy deployed by the U.S. government on multiple fronts, the Texas decision laid the ground for a novel argument raised by the authorities against the co-founders, namely that they were operating an unlicensed money transmitting business.
As a result, all analysis of the case at this stage are premature and subject to change as it proceeds. Nonetheless, crypto twitter and crypto lawyers have been dissecting all the materials published, among a wave of outrage and disconcert following this unexpected development regarding Tornado Cash.
The crypto space seemed on hold yesterday after what was deemed by Collins Belton, a seasoned crypto attorney, as “arguably the most significant legal action that has occurred in crypto.”
Amongst many others, Jake Chervinsky, Chief Policy Officer at the advocacy group Blockchain Association, defended code as speech in an X post and qualifies the indictment as a direct attack against the open-source development space.
This case may have consequences way beyond the faith of the Tornado Cash founders because of the novel argumentation of the operation of an unlicensed money transmission it puts forward. It could impair the constitutional right to free speech, harm the right to privacy, and be another nail in the coffin of the U.S. blockchain industry.
Peter Van Valkenburgh, Director of Research at Coin Center, an advocacy group that has a case pending against the OFAC sanctions on Tornado Cash, was quick to identify that factual allegations of unlicensed money transmission conflict with FinCEN’s longstanding 2019 Virtual Currency Guidance that an “anonymizing software provider is not a money transmitter”.
Even within the government, it seems that offices disagree.

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