In an Aug. 23 statement on its website, OFAC indicated that it had added Roman Semenov, a Russian national who helped start Tornado Cash, to a list of people who are “specially designated nationals.”
OFAC wrote down all of his known email addresses and his Ethereum (ETH) wallets.
Tornado Cash Co-Founders Facing Money Laundering Charge
Additionally, the FBI and the IRS detained Roman Storm, another co-founder of the crypto mixer, on August 24. Semenov and Storm were charged with conspiracy to commit money laundering, conspiracy to operate an unauthorized money-transfer business, and conspiracy to violate sanctions.
According to Wally Adeyemo, Deputy Secretary of the Treasury, Semenov and Storm allegedly laundered hundreds of millions of dollars worth of stolen crypto on behalf of the Lazarus Group, which is connected to the North Korean regime of Kim Jong Un.
Nearly a year ago, Semenov reported that his account was suspended on GitHub. Around the same time, a Tornado Cash developer, Alexey Pertsev, was arrested by the Dutch Finance and Information Service. He was released nine months later, on April 26, 2023, and is currently awaiting trial for facilitating crypto asset-based money laundering.
Judge Sides With OFAC
Semenov was added to OFAC’s list after a judge sided with the US Treasury on Aug. 18 in the Tornado Cash lawsuit. In that case, Tornado Cash tried to say that OFAC went beyond its authority and jurisdiction when it banned the crypto mixer.
The move by OFAC is the first big step to put penalties on Semenov himself, not just on Tornado Cash as a company.
In 2022, the agency sanctioned Tornado Cash because it said that hackers had been able to launder as much as $7 billion worth of stolen crypto assets through it. At that time, OFAC provided information on 45 ETH wallets that it claimed the crypto tumbler had used to help launder illicit funds.
The judge in charge of the case decided that Tornado Cash could be sanctioned since it bore the hallmarks of a person because it was composed of its founders, developers, and a decentralized autonomous organization (DAO) that governed it.
The blacklisting of Tornado Cash meant that US citizens were banned from using the service.
Indictments Run Counter to FinCEN Guidance
Following the sanctioning and indictments of Semenov and Storm, the crypto advocacy organization Coin Center issued a statement regarding the issue.
The Center’s Director of Research, Peter Van Valkenburgh, pointed out that the indictment lacked sufficient details to prove clear violations of the law.
He claimed Semenov and Storm are accused of “transferring funds on behalf of the public” without registering with the Financial Crimes Enforcement Network (FinCEN). Yet, no evidence has been given to show they engaged in activities qualifying as money transmission according to the Bank Secrecy Act’s regulations.
According to Van Valkenburgh, the Tornado Cash co-founders appear to fall under the category of anonymizing software providers, as outlined by FinCEN, rather than money transmitters.
Activities the two were involved in, such as web hosting and software repository services, are excluded from money transmission under FinCEN’s 2019 guidance.
Furthermore, per Coin Center, the indictment also states the defendants advertised the Tornado Cash tool, profited from a governance token, and designed aspects of it, but these activities do not align with the definition of “acceptance and transmission” of money.
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