Peter Van Valkenburgh, the research director of cryptocurrency advocacy group Coin Center, has strongly criticized the recent indictment of two former Tornado Cash developers. He contends that the provided evidence does not clearly establish any wrongdoing related to money transmitting activities.
The indicted individuals, Roman Storm and Roman Semenov, faced charges from the United States Office of Foreign Asset Control on August 23, primarily for allegedly conspiring to operate an unlicensed money-transmitting business, among other accusations.
In a subsequent opinion piece, Van Valkenburgh asserts that the allegations made in the indictment seem to contradict guidance provided by the United States Financial Crimes Enforcement Network (FinCEN). He argues that Tornado Cash should be regarded as a provider of anonymizing software for transmitting money, rather than as an entity directly engaged in money transmission.
In a critical examination of the indictment against the two former Tornado Cash developers, Peter Van Valkenburgh, the research director at Coin Center, underscores a crucial point. The indictment alleges that the defendants were involved in unlicensed money transmission because they “engaged in the business of transferring funds on behalf of the public” without registering with FinCEN.
However, Van Valkenburgh questions whether the facts presented in the indictment actually substantiate that the defendants participated in activities that legally qualify as money transmission. He points to an interpretation provided by FinCEN under the U.S. Bank Secrecy Act, explicitly stating that “an anonymizing software provider is not a money transmitter.” This interpretation casts doubt on the indictment’s core premise, emphasizing the need for a more nuanced examination of the situation.
Valkenburgh then cited another crucial passage that explicitly defines who can be considered a money transmitter: “A person that utilizes the software to anonymize the person’s own transactions will be either a user or a money transmitter, depending on the purpose of each transaction.” He argued that while Tornado Cash facilitated individuals in using the protocol’s smart contracts for money transmission, this doesn’t automatically categorize the developers themselves as money transmitters.
He emphasized that merely providing tools for others to transmit their own money shouldn’t transform the developers into transmitters by default.
Valkenburgh also scrutinized the claims made in the indictment, which suggested that Storm and Semenov had complete control over the protocol’s smart contracts. He highlighted a fundamental aspect of Ethereum smart contracts, stating that they can have varying degrees of control, ranging from none to partial or total control. This, he contended, is a pivotal factor in determining whether one is engaged in money transmission.
Coin Center had previously expressed its opposition to the U.S. Treasury, taking legal action against the agency in October over what it deemed as unprecedented and unlawful sanctions imposed on Tornado Cash.
The OFAC indictment alleges that Storm and Semenov operated an unlicensed money transmission service by engaging in the business of transferring funds on behalf of the public. The enforcement agency argued that the developers should have registered with FinCEN.
Semenov found himself added to OFAC’s list of Specially Designated Nationals and Blocked Persons on August 23, while Storm was apprehended by the Federal Bureau of Investigation in Washington state on the same day. Another co-founder of Tornado Cash, Alexey Pertsev, had been detained by Dutch authorities in August 2022 but was subsequently released in late April. Valkenburgh stressed that the outcome of the Tornado Cash case could have far-reaching implications for the future legal rights of U.S. citizens to develop and release software.
