Tornado Cash OFAC Sanctions
As of August 8, 2022, the Office of Foreign Assets Control (OFAC) has concerns that Tornado Cash had been involved in the laundering of over $7 billion worth of cryptocurrency leading to OFAC sanctions. For more information click here. OFAC also held suspicions that Tornado Cash played a pivotal role as a tool employed by North Korea’s Lazarus Group in the process of laundering unlawfully obtained cryptocurrency totaling $455 million according to Ballard Spahr. In sum, illicit gains amounting to $1 billion were funneled through Tornado Cash via money laundering activities (Ballard Spahr).
Tornado Cash is a privacy-focused cryptocurrency mixing service that operates on the Ethereum blockchain located in Moscow, Russia. Its primary purpose is to enhance the privacy and anonymity of Ethereum transactions. Tornado Cash combines various digital assets, potentially including funds obtained illegally with legitimately obtained funds.
Co-Founders of Tornado Cash
Roman Storm (Storm) and Roman Semenov (Semenov) are the founders of Tornado Cash. Storm and Semenov created, promoted, and ran Tornado Cash, with the awareness that a substantial portion of the processed funds constituted illicit proceeds routed through the platform to conceal their origins.
Despite receiving complaints from Tornado Cash customers who fell victim to hacking incidents, Storm and Semenov chose not to provide any form of assistance. Furthermore, the indictment alleges that even though they were aware of the involvement of criminal proceeds, Storm and Semenov did not implement any Anti-Money Laundering (AML) or Know-Your-Customer (KYC) controls.
Storm was arrested and Semenov was sanctioned. There was also a third alleged co-founder of Tornado Cash, Alexey Pertsev. Alexey, a co-conspirator, was arrested on related money laundering charges in the Netherlands last year.
Complaints against OFAC Sanctions and Treasury
Six plaintiffs initiated a legal action against OFAC and Treasury, alleging violations of the Administrative Procedures Act (APA) and the First Amendment’s Free Speech Clause. The APA sets forth the rules and regulations that federal agencies must follow when making and enforcing regulations, conducting investigations, and making decisions that affect individuals and organizations. The plaintiffs contention centered on the argument that Tornado Cash does not qualify as a legal entity, which, in turn, should exempt it from sanctions.
The court interpreted the term ‘person’ in its regulations to encompass both ‘individuals and entities.’ Treasury, in its definitions, had expanded ‘entity’ to encompass a range of structures including partnerships, associations, trusts, joint ventures, corporations, subgroups, and other organizations. The court also noted that Tornado Cash exhibited characteristics of an ‘association.’ Consequently, the court ultimately ruled that Tornado Cash qualifies as a ‘person’ subject to designation by OFAC, leading to the dismissal of the lawsuit.
What can we gather from all this?
Money laundering and sanctions are indeed crucial topics with significant implications for the global economy, security, and international relations. These efforts are vital to maintaining the rule of law, protecting financial systems, and promoting international peace and security.
The creators of Tornado Cash may face charges related to a conspiracy to commit money laundering, regardless of the outcome of the indictments. Based on substantiated allegations, they participated in activities that supported third parties in their efforts to launder illicit funds, all while being fully aware that these funds were acquired through unlawful means.
How Truth Technologies can help:
Truth Technologies‘ provides software designed to facilitate Anti-Money Laundering compliance. Contact us today for a free demo and see how we can help identify at-risk countries and which organizations or individuals may be associated with those countries.
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