The US Department of Justice (DoJ) has charged two out of three co-founders of Tornado Cash with crimes. One surrendered to US authorities; one is still on the run. Why has the DoJ not charged the third co-founder, Alexey Pertsev?
On Wednesday, the Treasury Department’s Office of Foreign Assets Control (OFAC) first sanctioned Russian national and Tornado Cash co-founder Roman Semenov for allegedly enabling North Korea’s Lazarus Group and other sanctioned entities to launder stolen digital assets. The Justice Department soon filed criminal charges against Semenov as well as a second co-founder, Roman Storm. Alleged crimes include conspiracy to commit money laundering and operating an unlicensed money-transmission business.
Storm has surrendered to US authorities and Semenov remains at large. However, third co-founder Pertsev has escaped charges in the US despite his arrest in the Netherlands in August 2022. The country filed charges against him that included “concealing criminal financial flows and facilitating money laundering” through Tornado Cash.
Enthusiasts defend coin mixing services
Sanctions against Tornado Cash and Pertsev’s arrest sparked protests among the digital asset community, who say the co-founders are being targeted for publishing code that enables greater financial privacy. Coin Center published an opinion piece saying the sanctions contradict the Financial Crimes Enforcement Network’s (FinCEN) guidance and could cause developers to hesitate to publish legitimate, privacy-preserving software.
Tornado Cash is a digital asset tumbler that can shuffle digital assets between multiple users to obscure their provenance. Crime rings like Lazarus Group have used Tornado Cash for money laundering.
The US Treasury’s sanctions against Tornado Cash quickly faced a legal challenge. However, US district judge Robert Pitman ruled against those plaintiffs, saying that OFAC had not exceeded its authority. Roman Storm was arrested soon afterward.
In US criminal proceedings, the code publisher’s First Amendment rights will likely appear as a legal defense. Specifically, the Supreme Court has ruled that free speech rights include publishing code.
Dutch law doesn’t recognize the same free speech rights as the US Constitution. This makes it more likely that DeFi’s non-speech nature will be slightly more important in Pertsev’s trial in the Netherlands.
Who is the unindicted, third co-founder of Tornado Cash?
Interestingly, the Justice Department has not filed charges against Pertsev. This could be simple to explain: Pertsev has already surrendered to authorities abroad.
A judge in the Netherlands has ordered that Pertsev must remain in jail due to flight risk. The US government has reciprocation agreements with many countries around the world and respects the due process of certain foreign courts. The DoJ might be waiting to see how the Netherlands’ criminal case against Pertsev plays out before choosing to charge him domestically.
Throughout history, many supposedly “decentralized” finance apps have turned out to be centralized, with occasional cases of leaders ignoring voting decisions made by governance tokenholders. To that end, Dutch prosecutors might try to show that Tornado Cash’s developers possessed centralized powers, such as a power to overrule holders of Tornado Cash’s TORN governance token.
In any case, Pertsev’s legal team alleges that Dutch courts failed obligations similar to fair notice and due process, to inform him of important documents and details of charges. They also call the charges “too vague” to be properly brought before the court, with few details of exactly when, why, or how the money laundering occurred.
Pertsev was 29 years old at the time of his arrest. Originally from Moscow, he earned his degree in computer and information systems security from Maritime State University in Vladivostok, Russia. His work experience includes computer penetration testing for a cybersecurity firm called Digital Security. He also worked in cybersecurity at PepperSec. Later, he moved to the Netherlands and married Ksenia Malik.
In summary, the highest law enforcement division in the US has taken action against Tornado Cash co-founders Roman Semenov and Roman Storm. However, DoJ might be taking a “wait and see” attitude toward Tornado Cash co-founder Alexey Pertsev, who is already facing court proceedings in the Netherlands, in respect for diplomatic reciprocity.