Dutch court sentences Tornado Cash co-founder to 5 years in prison for money laundering

ReportMay 15, 2024Editorial DepartmentCryptocurrency/anonymity

A Dutch court on Tuesday sentenced one of the co-founders of the now-approved Tornado Cash cryptocurrency mixing service to five years and four months in prison.

Although the names of the defendants were redacted in the verdict, it is known that Alexey Pertsev, a 31-year-old Russian citizen, has been awaiting trial in the Netherlands on money laundering charges.

Pertsev, one of the developers of Tornado Cash, was arrested in Amsterdam in August 2022, days after the U.S. Treasury Department sanctioned the service for allowing malicious actors such as the Lazarus Group to launder money and cash out proceeds.

In addition to prison terms, the defendants will also forfeit cryptocurrency assets worth €1.9 million (approximately $2.05 million) and a previously seized Porsche car.

“The defendant declares that he has no intention of breaking the law or assisting criminal activity,” the ruling summary said. “Through Tornado Cash, he hopes to provide a legal solution to the crypto community’s growing privacy needs. According to him, users have a responsibility not to abuse Tornado Cash. ”

However, the East-Brabant District Court disagreed, saying that the operation of Tornado Cash was entirely the responsibility of its founders and that they had not integrated sufficient mechanisms to prevent abuse.

“Tornado Cash does not pose any obstacle to those who possess criminal assets and want to launder money,” the court added. “That is why the court found the defendant guilty of money laundering activities.”

Tornado Cash acts as a decentralized cryptocurrency mixer (aka Tumbler), allowing users to obscure blockchain transaction traces by “mixing” illegally and legally obtained funds, which is a problem for adversaries who want to conceal the source of stolen funds. Said to be a profitable option.

The company also allegedly failed to implement know-your-customer (KYC) or anti-money laundering (AML) programs as required by U.S. federal law. Most importantly, it is not registered as a money transfer entity with the U.S. Financial Crimes Enforcement Network (FinCEN).

A year later, the U.S. Department of Justice indicted two other founders of the company, Roman Storm and Roman Semenov, charging them with conspiracy to launder money, conspiracy to violate sanctions, and Conspiracy to operate an unlicensed money transfer business.

The case has sparked a debate, with privacy advocates arguing that anonymity tools like Tornado Cash should not be criminalized, and governments taking a firm stance against unregulated products that could be exploited by bad actors for illicit purposes. position.

The Dutch court further described Tornado Cash as combining “maximum anonymity and optimal concealment techniques” without adding provisions that “make identification, control or investigation possible.”

“Tornado Cash is not a legitimate tool intended to be inadvertently misused by criminals,” it said. “The defendants and their associates developed the tool to automate the concealment required for money laundering.”