The US government began cracking down on the founders of cryptocurrency platform Tornado Cash days after a federal judge ruled that the executive branch had the power to impose sanctions on them.
The Treasury Department’s Office of Foreign Assets Control has imposed sanctions on Roman Semenov, one of the three co-founders of Tornado Cash, for allegedly supporting the North Korean hacking organization Lazarus Group, among other things.
Also on Wednesday, the Justice Department released an indictment against Semenov and Tornado Cash co-founder Roman Storm for conspiracy to launder money, operating an unlicensed money transfer business, and other criminal offenses. Storm was arrested by federal officers on Wednesday.
Tornado Cash and other cryptocurrency platform services combine various digital assets, including potentially illegally acquired funds, with lawfully acquired funds in order to disguise the origin of the stolen funds.
Tornado Cash was sanctioned in August 2022 for allegations of helping launder more than $7 billion worth of virtual currencies since its launch in 2019. The Treasury Department said Tornado Cash’s systems were used to launder more than $96 million from cryptocurrency thefts from blockchain bridge Harmony in June and the robbery of crypto firm Nomad in August, among other things. Federal prosecutors also charged Semenov and Storm with violating sanctions against Tornado Cash.
The sanctions and arrest come after U.S. District Judge Robert Pitman ruled Aug. 17 that the Treasury Department had not exceeded its authority in sanctioning Tornado Cash. A group of crypto investors filed a lawsuit against the Treasury in September 2022, alleging that the Treasury exceeded its authority in sanctioning Tornado Cash.
The sanctions met with fierce opposition from the cryptocurrency industry, which argued that the measures opened the door for restrictions on Americans’ use of privacy software.
A third Tornado Cash co-founder, Alexey Pertsev, was arrested in August 2022 on money laundering charges in the Netherlands.
In May, the United States sanctioned North Korea’s digital currency platform, Blender.io, which the country allegedly uses to launder stolen virtual currencies and support cybercrime.
Blender is accused of helping the Lazarus Group pull off a $620 million digital currency heist in March, the largest of its kind to date.