Authorities claim that founders of a “decentralised” and “open source” project run mostly by the community were making “large-scale profits” off illicit funds funneled through their platform, and now at least one founder has come face-to-face with the long arm of Dutch law enforcement.
The Netherlands’ Fiscal Information and Investigation Service, the country’s finance crime law enforcement division, announced Friday that they had arrested a 29-year-old Amsterdam resident who they alleged was involved “in concealing criminal financial flows and facilitating money laundering” through the crypto mixer Tornado Cash.
Tornado Cash, which self-identifies as a decentralised, open source project, was sanctioned by the U.S. Department of the Treasury Monday, accusing the service of allowing illicit parties to launder over $US7 ($10) billion worth of crypto in the three years since launch. Among that was apparently a massive chunk of the $US625 ($868) million Ronin Bridge hack stolen by hackers linked to the North Korean regime.
But apparently, Dutch officials have been investigating Tornado Cash even before the U.S. put the crypto mixer on its sanctions list. The release states that the cyber arm of FIOD started investigating Tornado Cash back in June of this year. The law enforcement agency said they suspect the persons behind the creators of the decentralised autonomous organisation (DAO) that runs the crypto mixer has seen a turnover of “at least” $US7 ($10) billion and that the founders “have made large-scale profits” from funds stolen through hacks, including those run by North Korean-affiliated operations.
As of Friday morning, the site hosting Tornado.cash was down, and though we reached out to developers online we still have not heard what could have caused the issue. The Treasury department sanctions effectively put the mixer’s crypto wallets on a list of sanctioned accounts, making it illegal for any U.S.-based business or citizen to do business with the platform. Other crypto businesses like crypto consultants Circle quickly worked to distance themselves from the sanctioned mixer.
Here’s the list of Tornado Cash resources that were banned
– Tornado Cash @GitHub organization
– personal @GitHub accounts of TC contributors
– all $USDC on Tornado Cash contracts @circlepay
– @infura_io RPC
– @AlchemyPlatform RPC
– https://t.co/SHvgEjTOMV domain @eth_limo— 🌪️ Tornado.cash 🌪️ (@TornadoCash) August 9, 2022
DAOs are meant to be decentralised, and require a consensus vote from stakeholders to make any changes to the blockchain systems. However, DAO founders still have an outsized stake in the operation since they originally agreed to the rules and coding of the blockchain. Crypto mixers work by taking in multiple users’ crypto funds, mixing them around to help conceal the source of the digital currency before redistributing the funds back to the users, minus a cut.
Fans of Tornado Cash and other crypto mixers still argue for their use despite the massive amount of obvious illicit crypto laundering going on. Crypto proponents regularly evangelize the ideals of blockchain decentralisation, claiming part of the purpose of crypto is to keep transactions out of the reach of government censors. Proponents point to examples such as trying to keep themselves and donors anonymous when offering financial support to Ukrainian troops fighting off the ongoing Russian invasion. Vitalik Buterin, one of the founders of the Ethereum blockchain, said he’s used Tornado for this very purpose.
I’ll out myself as someone who has used TC to donate to this exact cause.
— vitalik.eth (@VitalikButerin) August 9, 2022
There is no official confirmation of which Tornado Cash developer has been detained, though FIOD further said they were not ruling out the possibility of multiple arrests. It’s unclear whether the arrest was related to writing the mixer’s original code, or other allegations of illegal conduct.
One of Tornado Cash’s developers Roman Semenov reported earlier this week his GitHub account was taken down. Though he complained “is writing an open source code illegal now,” the internet hosting service that is GitHub isn’t technically dealing with Tornado Cash’s sanctioned crypto wallets, so it’s more likely the code-hosting company is trying to avoid any connection to the heavily cited crypto mixer.
In a January interview with CoinDesk, Senenov, a co-founder of the mixer protocol, said “the team doesn’t have much control over the protocol” further claiming they mostly just publish code to GitHub, while all the important decisions are made by the Tornado community via the DAO.
Semenov did not immediately respond to Gizmodo’s questions sent over Twitter. A spokesperson for GitHub told Gizmodo in an email that “Trade laws require GitHub to restrict users and customers identified as Specially Designated Nationals (SDNs) or other denied or blocked parties, or that may be using GitHub on behalf of blocked parties.”