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US OFAC Targets Tornado Cash Developers Over Alleged Money Transmission Violations

Two Tornado Cash developers are indicted for alleged unlicensed money transmission, but crypto group Coin Center challenges the claims.

Fri, 25 Aug 2023, 08:28 am UTC

Controversy has erupted as two developers from Tornado Cash, Roman Storm and Romen Semenov, find themselves in the crosshairs of the United States Office of Foreign Assets Control (OFAC). The duo were charged on August 23, facing allegations of conspiring to manage an unlicensed money-transmitting operation, among other accusations.

Peter Van Valkenburgh, the research director of the crypto-centric group Coin Center, expressed skepticism over the indictment. He clarified that the claims in the charges seemed inconsistent with the guidelines set by the U.S. Financial Crimes Enforcement Network. According to Valkenburgh, Tornado Cash is merely a software provider allowing money transactions, rather than actually moving the funds themselves.

Drawing from the indictment, Valkenburgh emphasized that the accused were indicted for "engaging in the business of transferring funds for the public" without any registration with FinCEN. He also noted the stance of the U.S. Bank Secrecy Act, which clearly indicates that providing anonymizing software doesn't label one as a money transmitter. Furthermore, he explained that only those individuals employing the software for transactions could potentially be seen as money transmitters.

While acknowledging Tornado Cash's role in simplifying the process for people to use the system's smart contracts for monetary transactions, Valkenburgh contended that it shouldn’t automatically tag the software developers as money transmitters.

The research director also took issue with suggestions in the charges that hinted at Storm and Semenov having absolute command over the system's smart contracts. He underscored the variability of Ethereum smart contracts, with varying degrees of control, which is instrumental in determining the act of money transmission.

Earlier, Coin Center had made its dissent known against the U.S. Treasury in October, opposing the unique and potentially illegal sanctions imposed on Tornado Cash.

Furthermore, the OFAC accusations assert that Storm and Semenov neglected to register with FinCEN while allegedly providing money transmission services for the public. Semenov has since been listed in OFAC’s Specially Designated Nationals and Blocked Persons list as of August 23, with Storm being apprehended by the Federal Bureau of Investigation in Washington on the same date.

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