DoJ Opposes Motion to Dismiss Charges Against Tornado Cash Developer

The U.S. Department of Justice has opposed a motion from Roman Storm, a developer who worked on Tornado cash, a sanctioned crypto mixing protocol, to dismiss criminal charges against him.

In a court filing published on April 26, the department said its charges against Storm should be put before a jury, arguing that it is too early in the proceedings to warrant dismissal.

On August 23, 2023, the Department of Justice (DoJ) arrested Storm on charges of operating an unlicensed money-transmitting business and conspiring to engage in money laundering. The DoJ said Storm profited millions from developing, marketing, funding, and operating Tornado Cash from September 2020 to August 2022.

Over those two years, the department alleges that Tornado Cash facilitated the laundering of at least $1 billion in criminal proceeds, including hundreds of millions associated with North Korea’s state-sponsored hacking organization, Lazarus Group.

"The Indictment clearly alleges that the Tornado Cash service was a commercial enterprise carried on for profit or finanancial [sic] gain and that the defendant himself profited from its operation through his control, with others, of key components of the integrated Tornado Cash service," the filing reads.

In March, Storm's defense team sought the case’s dismissal, arguing that Tornado Cash does not constitute a "financial institution" as it is not a “custodial mixing service.” The defense added that Storm was unable to prevent groups like Lazarus from utilizing the service due to the protocol’s decentralized nature, and argued that developing code for Tornado Cash does not comprise the operation of a money laundering entity.

The DoJ countered that Tornado Cash did not merely comprise code, also spanning "a website, user interface, [and] certain smart contracts.”

Tornado Cash

Tornado Cash is a custodial protocol that enables private cryptocurrency transactions by blending the assets and transactions of users within its smart contracts, making it difficult to trace the origins of the funds. In its documents, Tornado Cash claims it does not comprise a mixer as funds as its “anonymity pools” do not “commingle” deposited funds.

In August 2022, Tornado Cash was sanctioned by the U.S. Treasury Department in response to Lazarus Group routinely adopting Tornado Cash as a vehicle to obfuscate the on-chain transaction history associated with its stolen assets.

Storm pleaded not guilty to all charges and was released on a $2 million bond in September 2023, and is now set to stand trial in September.

Roman Semenov, a fellow Tornado Cash developer, is accused of facilitating money laundering activities and unlicensed money transmissions through his contributions to Tornado Cash. Semenov has not been apprehended.

Privacy advocates rallied in defense of Storm on social media in response to the latest DoJ filing.

In an April 27 tweet, Amanda Tuminelli, legal head at the DeFi Education Fund, said the Justice Department’s filing was "filled with technical inaccuracies, obvious disdain for privacy and emerging technology, and misapplication of the law.”

Gabriel Shapiro, a crypto-focused lawyer at MetaLeX Labs, described the DoJ’s indictment as an “abhorrent case… esp[ecially] to seek a prison sentence over.” Shapiro added that he doubts the proceedings will establish a broader precedent that DeFi developers operate as unlicensed money transmitters.

“I’m really glad that the regulators sanctioned Tornado Cash, cozied up to SBF, and focused on killing DeFi instead of putting in guardrails to potentially prevent the FTX collapse,” Anthony Sassano, the host of the Daily Gwei podcast, tweeted. “I feel very protected as an investor right now.”

Sanctioned

On August 8, 2022, the US Treasury imposed sanctions on Tornado Cash, effectively prohibiting US citizens from engaging with the platform’s smart contracts. Notably, this action by the OFAC represents the first instance where a piece of code — Tornado Cash’s smart contracts — was included on its list of Specially Designated Nationals.

The sanctions precipitated a 64% drawdown in the protocol’s total value locked (TVL) from $460 million on Aug. 8, 2022, to less than $165 million six weeks later. Tornado Cash currently hosts $472 million in TVL after growing 110% since mid-October, with 90% residing on Ethereum and 9% on BNB Chain.

Last week, the co-founders of Samourai Wallet, a cryptocurrency mixer service, were similarly charged with facilitating money laundering and unlicensed money transmitting offenses.