Tornado Cash indictment fails to show ‘clear violation’ of certain laws: Coin Center
Tornado Cash indictment fails to show ‘clear violation’ of certain laws: Coin Center

Cryptocurrency advocacy group Coin Center has criticized the latest indictment against two former Tornado Cash developers, arguing that the facts presented do not reveal any apparent money transmission-related violations.

Roman Storm and Roman Semenov were indicted by the Office of Foreign Assets Control on Aug. 23 on charges including conspiring to operate an unlicensed money transmission business.

in the follow-up View According to Peter Van Valkenburgh, director of research at Coin Center, the claims in the indictment appear to contradict the guidance of the Financial Crimes Enforcement Network of the United States — that Tornado Cash only provides the software to transmit funds, not the funds themselves.

“The only allegation in the indictment of the defendants’ unauthorized transfer of funds is that they ‘conducted the business of transferring funds on behalf of the public,’ and were not registered with FinCEN,” Valkenberg wrote.

But does the indictment state any facts that actually show that the defendants engaged in any activity that would qualify as a money transfer under the relevant laws?

He points to FinCEN’s interpretation of what constitutes a “funds transmission service” under the U.S. Bank Secrecy Act, which states:

“Anonymous software providers are not money transmitter“.

Excerpted from FinCEN’s 2019 Virtual Currency Guidelines. Source: FinCEN.

Valkenburg then cites another excerpt stating that only people using the software can be considered money transmitters:

“(A) The person using the software to anonymize their own transactions will be either the user or the money sender, depending on the purpose of each transaction.”

While Valkenburgh said Tornado Cash makes it easier for individuals to use the protocol’s smart contracts to transfer funds, he doesn’t think that means the developers themselves are money transmitters.

“(But) that doesn’t mean they are transmitters just because they provide the tools that other people use to transmit their own funds,” Valkenburg explained.

Valkenburgh also criticized the indictment’s suggestion that Storm and Semenov have full control over the protocol’s smart contracts.

“Ethereum smart contracts are mutable, and sometimes people can’t control their operation, partial control or full control. This is the key fact needed to determine whether a person is making a money transfer,” he believes.

related: Crypto Lobbyists Still Fighting to Remove ‘Illegal’ Tornado Cash Sanctions

Coin Center first voiced its opposition to the U.S. Treasury Department in October, when it sued the U.S. Treasury Department for unprecedented illegal sanctions against Tornado Cash.

The OFAC complaint alleges that Storm and Semenov operated Unauthorized Funds Transmission Engage in the service of transferring funds on behalf of the public. Law enforcement agencies claim developers should register with FinCEN.

Semyonov was added to OFAC’s list of Specially Designated Nationals and Blocked Persons on August 23, the same day Storm was arrested by the Washington State FBI.

Another Tornado Cash founder, Alexey Pertsev, was imprisoned by Dutch authorities in August 2022 and released at the end of April.

Valkenburgh believes that the outcome of the Tornado Cash incident will have a profound impact on the legal rights of US citizens to build and distribute software in the future.

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