The all-too-identifiable individuals behind anonymous coin mixing services are finding that their plans to laugh all the way to the bank are taking detours via courtrooms and prison cells.
On April 24, the U.S. Attorney’s Office for the Southern District of New York announced the arrests of Keonne Rodriguez and William Lonergan Hill, co-founders of the Samourai Wallet non-custodial app and coin mixing service. The pair are charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money-transmitting business. If served consecutively, the pair are potentially looking at a maximum of 25 years in prison.
The indictment alleges Samourai “executed over $2 billion in unlawful transactions” due to its lack of a money transmitting license as well as its founders’ “deliberate failure to implement” anti-money laundering and ‘know your customer’ protocols.
As part of these transactions, Samourai facilitated “more than $100 million in money laundering transactions from illegal dark web markets, such as Silk Road and Hydra Market.”
Samourai’s “disregard for regulation” also enabled the laundering of the illicit proceeds of “a web-server intrusion; a spear-phishing scheme; and schemes to defraud multiple decentralized finance protocols.” Samourai’s operators reportedly earned around $4.4 million in fees from users looking to scatter their digital breadcrumbs so law enforcement couldn’t track them.
Rodriguez was arrested stateside while Hill was detained in Portugal and is now awaiting extradition to the U.S. Hill’s overseas arrest offers further proof that merely avoiding stateside travel is insufficient to immunize oneself from the consequences of yelling ‘nyah nyah nyah nyah nyah nyah’ at U.S. authorities.
With the help of law enforcement agencies in Iceland, Samourai’s servers have been seized. Their dot-com domains have also been seized, while Google Play (NASDAQ: GOOGL) has halted downloads of the Samourai app for U.S. users.
Unlike many coin mixers based on the Ethereum blockchain, Samourai catered to those looking to obfuscate the digital trail of BTC tokens and keep “your identity masked.” This service, known as Whirlpool, was upgraded just one month ago in a bid to further decentralize the mixing process, a step Samourai labeled ‘Whack-A-Mole.’
Samourai also offered a feature called Ricochet, which added “extra hops of history to your transaction” and allowed customers to “[s]tump the blacklists and help guard against unjust 3rd party account closures.”
This type of needlessly provocative language was typical of the brash Samourai crew. In March 2022, Hill rubbished a Financial Times article that quoted a Europol assessment that mixers were a ‘top threat’ by tweeting, “Do you see us shitting in our pants?” Then? No. Now? Um…
In June 2022, as the U.S. imposed economic sanctions on Russia for its invasion of Ukraine, Rodriguez tweeted, “Welcome new Russian oligarch Samourai Wallet users.” As Avraham, ‘What are you gonna do, arrest me?’ Eisenberg is soon to discover, that tough talk plays far better on Twitter/X than it does in a prison group shower. Consider these moles whacked. And whacked good.
Foggy bottom
Rodriguez and Hill’s chances of prevailing in court look even worse following last month’s conviction of Roman Sterlingov, the Swedish-Russian operator of the Bitcoin Fog mixer. Sterlingov was convicted on charges of money laundering conspiracy, operating an unlicensed money transmitting business and violations of the District of Columbia Money Transmitters Act. Sterlingov will learn his sentence on July 15.
Sterlingov ran Bitcoin Fog from 2011 until his arrest in April 2021, marking the end of the longest-running mixer in crypto’s relatively short history. During this run, Bitcoin Fog moved “well over” 1.2 million BTC worth nearly $400 million based on the token’s price at the time of the transactions.
The DoJ’s post-conviction press release said that the bulk of those BTC “came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft. [Sterlingov’s] service also served purveyors of child sexual abuse material (CSAM) through the notorious site Welcome to Video.” Stay classy, ‘crypto.’
U.S. Deputy Attorney General Lisa Monaco said Sterlingov “thought he could use the shadows of the internet to launder hundreds of millions of dollars in [BTC] without getting caught. But he was wrong… no matter where you operate, if your cryptocurrency service reaches the United States, you must abide by U.S. law.”
Ilya Lichtenstein, who last year pleaded guilty to the 2016 hack of the Bitfinex exchange, testified at Sterlingov’s trial that Bitcoin Fog was one of the mixers Lichtenstein and his partner Heather ‘Razzlekhan’ Morgan used to launder some of their ill-gotten gains. But Lichtenstein told the jury he later moved on to other mixers that “suited his purposes better.”
Tornado warning
Speaking of, the global efforts to prosecute the individuals behind the Ethereum-based Tornado Cash mixer continue unabated. Developer Alexey Pertsev, who was arrested in the Netrlanheds in August 2022, was charged with helping to launder $1.2 billion worth of ETH between July 2019 and the time of his arrest.
A Russian national who was alleged to have ties to Russian intelligence services, Pertsev pleaded not guilty to his charges. His trial in the Netherlands was conducted over two days last month, with prosecutors seeking a 64-month sentence. The verdict is scheduled to be delivered on May 14.
While Pertsev told the court he was “disappointed” that criminals and rogue regimes such as North Korea were big fans of Tornado Cash, he claimed that he simply wrote some code and had no control over who used the mixer. So blaming him for bad actors who found his software a big help in laundering stolen cash wouldn’t be “fair.”
Pertsev’s arrest came shortly after the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash. The following year, the DoJ charged Tornado Cash co-founders Roman Storm and Roman Semenov with money laundering, sanctions violations, and other offenses.
While Semenov remains free in Russia, Storm was arrested in the state of Washington last August and subsequently released on a $2 million bond. On March 29, Storm’s attorneys filed a motion to dismiss the charges against him, making many of the same ‘code is law’ arguments Pertsev made in the Netherlands.
Which basically amounts to—sure, I built that catapult, made sure it was well-stocked with gasoline-filled projectiles, and then left it in the hands of those rowdy teens for whom I’d just bought beer and Zippo lighters, but I don’t see how that makes me responsible for that hospital burning to the ground.
Shortly before Storm’s motion was filed, blockchain analysts Elliptic reported that North Korea’s infamous Lazarus Group hackers had used Tornado Cash to launder over $100 million worth of tokens stolen from the HTX (formerly Huobi) exchange and its HECO cross-chain bridge late last year. The tokens were converted to ETH and then funneled through Tornado Cash starting March 13. Good timing, that.
No, law is law
With respect to the ‘code is law’ camp, this was always a bad bet, but that bet looked even worse after the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) declared that international coin mixers would be formally designated as “a class of transactions of primary money laundering concern.”
That declaration came hot on the heels of last October’s attacks on Israel by the Hamas terror group, which convinced a bipartisan group of over 100 U.S. federal legislators to urge the Treasury to develop plans to “prevent the use of crypto for the financing of terrorism.”
That didn’t stop a group of Ethereum users from attempting to challenge the federal government’s sanctions against Tornado Cash. Despite having had their case dismissed last August, the parties appealed that dismissal to the U.S. Fifth Circuit. Kim Jong-unbelievable…
While Uncle Sam gets most of the credit/blame, the U.S. is not alone in this anti-mixer campaign. A swathe of European authorities played a role in last year’s takedowns of the ChipMixer and Sinbad services, while the U.K.’s National Crime Agency has warned mixers to comply with money laundering laws or face the consequences.
On April 25, the Federal Bureau of Investigation alerted Americans not to use “cryptocurrency money transmitting services that are not registered as Money Services Businesses (MSB) according to United States federal law and do not adhere to anti-money laundering requirements.”
The FBI obliquely referenced recent actions involving unauthorized ‘crypto’ services and warned that using such services “may put you at risk of losing access to funds after law enforcement operations target those businesses.”
Rest assured, law enforcement agencies around the world will continue targeting those businesses until they learn to respect the law. The operators of these businesses need to decide whether that conversion happens inside or outside a prison cell.
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