DOJ insists Tornado Cash operated as a ‘commercial enterprise’

Founders kept Tornado running as sanctioned entities used it, the DOJ alleged.

In a recent 111-page court filing, federal prosecutors have responded to a motion by Tornado Cash co-founder Roman Semenov to dismiss charges of conspiracy and money laundering against him.

The government argues that characterizing Semenov’s alleged crime as merely writing code obscures his role in promoting and maintaining the Tornado Cash service, even when he knew it was being used to launder illicit proceeds from hacks.

The prosecutors’ motion asserts that the Tornado Cash service was a “commercial enterprise carried on for profit or finanancial [sic] gain” and that Semenov himself profited from its operation through his control, along with others, of key components of the service.

The government alleges that while it was possible to access the smart contracts powering Tornado Cash directly, most users relied on the native interface, and 98% of users utilized the optional relayer network, which was set up and operated by relayers manually whitelisted by Tornado Cash’s co-founders until March 2022.

Responding to Semenov’s argument that Tornado Cash was not a money-transmitting business, the prosecutors contend that the service “caused all of these actions to take place behind the scenes and without any further action by the customer.”

The prosecutors also claim that based on the basic definitions under the Tornado Cash terms of service, the platform was “transferring funds” as it executed customer deposits and withdrawals.

The government further alleges that actions taken by Semenov and his co-founder Roman Storm to keep Tornado Cash running, such as payments to host the site, paying gas fees for blockchain transactions, “refusing” to implement proper anti-money laundering programs, maintaining the relayer network, and developing new features to enhance anonymity, are part of the charged conspiracy.

The prosecutors point to Semenov’s own alleged admission of awareness that Tornado Cash was being used for illegal purposes, quoting a message he sent to the other founders: “guys we are fucked.”

Though the Tornado Cash developers implemented a UI change to screen out OFAC-sanctioned wallets, the government alleges this action was insufficient to prevent illicit activity by the Lazarus Group, a North Korean hacking organization.

“Even though they knew the UI change would be ineffective, they made public statements suggesting they were in compliance with the law. Then, despite obtaining confirmation that the UI change was ineffective, Semenov and the Tornado Cash founders took no further action to prevent the Lazarus Group’s continued use of the Tornado Cash Service to launder funds and evade sanctions, which they knew was ongoing,” the motion detailed.

Pushing back against efforts by crypto advocacy groups to cast the case as a threat to the freedom to write code, the prosecutors argue they are pursuing a narrower case that “does not present the question of what circumstances, if any, would give rise to criminal liability for a defendant whose only conduct consisted of writing code for smart contracts that were then deployed on the Ethereum blockchain.”

Despite this stance, the government maintained that operational logic of Tornado Cash implied that it required restrictions, pointing to Semenov’s alleged transfer of $2.7 million in Tornado Cash profits to unidentified cold wallets. Allegedly, this was done through the use of a VPN and a Binance account with a false identity.