MANHATTAN, NY – August 6, 2024 – Roman Storm, the developer behind Tornado Cash, was found guilty today of operating an unlicensed money transmitting business following a weeks-long trial in Manhattan federal court. The jury remained deadlocked on more serious charges of money laundering and violating sanctions related to North korea, leaving the door open for a potential retrial.
Some of Storm’s instant messages that his defense team wanted to use at trial.
The case, closely watched by the cryptocurrency industry, centers on Tornado Cash, a “crypto mixer” designed to obscure the origins of digital currency transactions. Prosecutors argued that Storm knowingly facilitated the laundering of funds, including those linked to the Lazarus Group, a North Korean state-sponsored hacking organization responsible for the $625 million Ronin Network hack in March 2022. The Lazarus Group used Tornado cash to launder over $455 million of the stolen funds, according to the U.S. Department of Justice.
Storm’s defense countered that he intended Tornado Cash to be a privacy tool, not a money laundering service. They presented text messages where Storm expressed satisfaction that North Korean hackers had been identified (“I’m glad those f*ckers are detected.”) and demonstrated efforts to integrate blockchain analysis tools to aid in recovering stolen funds. The defense argued the system’s anonymity was inherent to its design, making complete prevention of illicit use unachievable.
Central to the defense was the argument that Tornado Cash differs from traditional “mixers” like Helix, which was shut down in 2018 after its operator, Larry Harmon of Ohio, pleaded guilty to money laundering.Storm’s team emphasized Tornado cash’s use of smart contracts, creating a “non-custodial” system where the platform itself doesn’t control the funds.They also highlighted the lack of advertising on dark web forums, a tactic employed by Helix.
Storm also received assurances from venture capital backers, whose names have not been publicly released, that they believed Tornado Cash was operating legally at the time of its launch in 2019.
Understanding Crypto Mixers and Their Legal Status
Crypto mixers,also known as tumblers,are services that attempt to obscure the link between cryptocurrency addresses,making it arduous to trace the origin and destination of funds. They operate by pooling funds from multiple users and then redistributing them in a different order, effectively breaking the transaction trail. While proponents argue mixers enhance financial privacy, regulators view them as tools for illicit activity.
The legal landscape surrounding crypto mixers is evolving. The U.S. treasury Department’s Financial Crimes Enforcement Network (FinCEN) has classified mixers as money transmitting businesses, requiring them to comply with anti-money laundering (AML) regulations. However, the decentralized nature of many mixers, like Tornado Cash, presents challenges for enforcement.
The trial concluded last week with the jury unable to reach a unanimous decision on the charges of money laundering and sanctions violations. Prosecutors have not yet announced whether they will seek a retrial on those counts. storm remains out on $2 million bail pending sentencing for the unlicensed money transmitting conviction.
This case is part of a broader crackdown on crypto mixers. In 2024, the developers of Samourai Wallet, a privacy-focused Bitcoin wallet, were arrested and recently agreed to plead guilty to charges related to money laundering. The Department of Justice is actively pursuing cases against individuals and entities involved in facilitating illicit cryptocurrency transactions.
The Tornado Cash saga underscores the ongoing tension between financial privacy and law enforcement’s efforts to combat financial crime in the digital age. The partial verdict suggests that juries might potentially be hesitant to fully embrace the government’s most expansive claims regarding the culpability of developers for the misuse of their technology.
