In a shocking development for cryptocurrency users, the developers of Tornado Cash, an ethereum-based privacy protocol, have been charged by U.S. officials with laundering more than $1 billion worth of digital assets.
According to prosecutors in the United States District Court for the District of Columbia, three individuals, including the two developers of Tornado Cash, were arrested earlier this week for allegedly running an “unlicensed money transmitting business.”
The arrested individuals, Pavel Prikhodko and Levion Kim, are both Russian citizens and in charge of the Tornado Cash project – the self-proclaimed “most privacy-preserving Ethereum smart contract”. They were detained on April 13 and April 14th in San Francisco, California.
Prosecutors have accused the two developers of running an unregistered money service business and falsifying forms to conceal the true source of the funds they converted through their platform. According to the court documents, the pair is accused of laundering more than $1.1 billion in cryptocurrency from April 2020 to March 2021, generated from illicit sources.
The two developers allegedly received funds from sources including popular dark-web marketplaces such as Dream, Wall Street, and Point. They then converted the funds into anonymity-enhanced digital assets such as Monero and Zcash, according to the news reports.
The actions of the two developers were quickly condemned by the developers at Tornado Cash, who have been quick to differentiate the project from the accused individuals. In a statement, the project declared: “We are deeply distressed by these developments and take them very seriously. We do not condone or advocate any kind of illegal behavior. We strongly believe in the power of privacy to fight financial censorship, and we strive to ensure that all usage of our products is within legal limits.”
However, the case has raised concerns about the implications for privacy technologies such as Tornado Cash, and the extent to which governments can track transactions sent through such platforms. This could lead to increased regulation of such tools and potentially curtail their effectiveness in protecting users’ privacy.
It is expected that the case will also have broader implications for cryptocurrency users more generally. If the charges are proven, it could show that crypto exchanges and other services have failed to enforce KYC/AML rules, allowing criminals to exploit their platforms for financial gain. It could also demonstrate just how far some individuals will go to conceal the source of their funds.
The two developers are currently being held without bond and are facing charges of money laundering, operation of an unlicensed money transmitting business, and falsification of records. If convicted, they face up to 10 years in prison. It remains to be seen how this case will progress and what the full implications of the developers’ actions will be for both crypto businesses and privacy-focused projects.