Week In Crypto: Tornado Cash Co-Founder Sentenced To Five Years In Dutch Prison

May 17, 2024
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A co-founder of Tornado Cash is convicted of money laundering, the IMF tells Nigeria to regulate crypto exchanges, and Binance wins registration in India, despite enforcement action in the US.

A co-founder of Tornado Cash is convicted of money laundering, the IMF tells Nigeria to regulate crypto exchanges, and Binance wins registration in India, despite enforcement action in the US.

A 31-year-old developer has been sentenced to five years and four months in a Dutch prison for his role in helping to build Tornado Cash, a “notorious” virtual currency mixer.

On Tuesday (May 14), Alexey Pertsev was found guilty of “developing and maintaining” a “software tool” that was used by criminals to launder more than $2bn in illicit funds.

Pertsev, a Russian national, was living in Amsterdam at the time of his arrest in August 2022, and was convicted in a Netherlands court. He was accused of aiding crypto money laundering activities across multiple jurisdictions, including the US, the Netherlands, Russia and the United Arab Emirate, between 2019 and 2022.

“Tornado Cash has been developed in such a way that it automatically carries out the actions essential for money laundering,” Pertsev’s judgment reads.

“It combines maximum anonymity and optimal concealment techniques on the one hand, with a serious lack of functionalities that enable identification, control or detection on the other.

“As a result, Tornado Cash cannot be characterised as a legitimate tool that has been unintentionally abused by criminals.”

Court documents describe Tornado Cash as a “collection bin” where crypto-assets can be deposited from one Ethereum wallet and withdrawn from another.

Using sophisticated cryptography, Tornado Cash “terminates” the transaction trail on the underlying blockchain, thereby concealing both the sender and receiver of each transaction.

“The defendant declared that it was never his intention to break the law or to facilitate criminal activities,” the judgment adds. “With Tornado Cash, he wanted to offer a legitimate solution to the growing need for privacy in the crypto community. The court disagrees.”

Judge Henrieke Slaar, sentencing, ruled that Pertsev is “completely responsible” for the fact that Tornado Cash “takes care” of criminals because that is how he designed it.

“If the defendant had wanted to have the ability to take action against misuse, then he could have built that in, but he did not,” the judge said.

“Tornado Cash does not pose any barrier to those with criminal assets who want to launder them, and that is why the court regards the defendant guilty of the money laundering activities as charged.”

Prosecutors noted that it is “common knowledge” that crypto mixers are used by criminals, and that Pertsev was aware of this but made no effort to stop it.

During the trial, the court was shown group chat messages in which Pertsev discusses major hacks of crypto platforms and the likelihood that the proceeds were being laundered through Tornado Cash.

For example, US authorities have established that North Korea’s Lazarus Group used Tornado Cash to launder $450m of Ethereum from the hack of Axie Infinity, a blockchain-based game, in April 2022.

According to the US Treasury’s Office of Foreign Assets Control (OFAC), Lazarus Group’s illicit profits help to finance the North Korean dictatorship and fund its nuclear weapons programmes.

In addition to the prison sentence, Pertsev must forfeit $1.2m of crypto-assets, a Porsche sports car and €36,000 held in a Swiss bank account.

Meanwhile, the two other co-founders of Tornado Cash, Roman Storm and Roman Semenov, remain under indictment in the US, where they face charges of money laundering and sanctions evasion.

IMF tells Nigeria to regulate crypto exchanges

new report by the International Monetary Fund (IMF) has urged Nigeria to take a more welcoming approach to crypto exchanges, despite its ongoing feud with the world’s largest exchange, Binance.

Under Article IV of its Articles of Agreement, the IMF holds bilateral discussions with member states, usually once a year, and follows up with a report outlining current risks and policy recommendations.

In its latest report, Nigeria’s handling of crypto firms gains several mentions, mostly in relation to the devaluation of the naira.

Since June 2023, as covered by Vixio, the naira has lost 70 percent of its value against the US dollar — a collapse that the government has blamed primarily on capital flight and speculation fuelled by Binance.

The IMF notes that at the end of February this year, Nigeria forced Binance and other crypto exchanges to close their local operations.

Although the fund acknowledged Nigeria’s claims that these platforms were helping to facilitate capital flight, it also noted that “neither the identity of traders nor the origin of their funds could be traced”.

“[IMF] staff recommend that global crypto trading platforms be registered or licensed in Nigeria and subject to the same regulatory requirements applicable to financial intermediaries,” it said.

These requirements should follow the principle of “same activity, same risk and same regulation”, and should also ensure that crypto exchanges apply “preventive controls” against money laundering and terrorist financing.

The IMF’s report follows a 4,000-word blog post from Binance CEO Richard Teng, who claimed last week that the exchange had tried to become licensed in Nigeria, but the authorities never responded.

Teng added that, to this day, no crypto exchange has obtained a licence to operate in Nigeria.

Indian regulator confirms Binance registration

Meanwhile, in India, Binance is reported to have sealed a new registration with the Financial Intelligence Unit (FIU), which had previously banned the exchange for operating illegally.

As reported by CoinDesk, FIU director Vivek Aggarwal confirmed the registration during a meeting with several financial journalists, but the regulator has not yet announced it officially.

Aggarwal said the announcement will be made following the FIU’s decision on how much to fine Binance for its previous illegal conduct in India, which ended with the ban that was imposed in December 2023.

Last month, India’s Economic Times reported that Binance has agreed to settle the case with the FIU for a fine of $2m, citing people familiar with the matter — a claim that Aggarwal denied.

“Binance is registered but the compliance proceedings are not completed because the amount of penalty has to be decided by me, and that hearing is still going on,” he said.

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