In a detailed analysis, Peter Van Valkenburgh, director of research at Coin Center, has questioned the legal basis for the indictment of Tornado Cash co-founders Roman Storm and Roman Semenov. Tornado Cash is a decentralized cryptocurrency mixer that provides privacy features by obfuscating the origin of funds transacted through its platform. The co-founders were charged with conspiracy to operate an unlicensed money-transmitting business, among other offenses. Valkenburgh’s examination of the indictment revealed concerns about the clarity and validity of the charges.
Emphasizing the lack of clarity in the allegations against the Tornado Cash co-founders, Valkenburgh said in his article:
We’ll likely have more to say about the other charges and this new case in general, but we thought it would be useful to look at the difference between what is money transmission and what is mere software development or communications services.
According to the indictment, the defendants “engaged in the business of transferring funds on behalf of the public” without registering with the Financial Crimes Enforcement Network (FinCEN). Valkenburgh, however, argued that the factual allegations provided do not clearly demonstrate any violations of the relevant law.
The indictment’s allegations include that the defendants paid for web hosting services for a user interface, paid for a software repository (Github), and had “complete control” over the Tornado Cash smart contracts for a time before May 2020. Valkenburgh contends that these activities do not fit the regulatory definition of money transmission, as defined by the Bank Secrecy Act and further interpreted in FinCEN’s 2019 Virtual Currency Guidance.
FinCEN’s guidance specifically stated that “an anonymizing software provider is not a money transmitter”. It further explained that suppliers of tools like anonymizing software are engaged in trade, not money transmission. Valkenburgh pointed out that the defendants’ activities align with this guidance, as they provided tools for individual users to access and use Tornado Cash’s smart contracts to transmit money rather than acting as money transmitters themselves.
If the defendants only had the ability to change aspects of cryptography related to Tornado Cash’s privacy features, they would not have the ability to access, move, or direct user funds, according to Valkenburgh. He argued that this lack of “independent control” aligns with the description provided by FinCEN. Consequently, he believes that this would not constitute unlicensed money transmission.
