Tornado Cash logo on a mobile phone

Tornado Cash founders charged in $1 billion money laundering scheme, including for North Korea

Getting your Trinity Audio player ready...

The co-founders of Ethereum-based digital asset tumbler Tornado Cash were charged by the U.S. Department of Justice (DOJ) with money laundering and sanctions violations after they allegedly helped launder $1 billion, which included hundreds of millions of dollars for sanctioned North Korean cybercrime group Lazarus. In a related action, the U.S. Treasury Department also sanctioned Semenov for supporting Tornado Cash and the Lazarus Group.

A digital asset mixer, also known as a tumbler, is a platform that mixes potentially identifiable digital asset funds with others, usually by pooling funds, to obscure the trail back to the fund’s original source.

According to the indictment, unsealed on August 23 in the Southern District of New York, U.S. resident Storm and Russia-based Semenov created, operated, and promoted the Tornado Cash mixer that facilitated more than $1 billion in money laundering transactions, including for Lazarus Group, the sanctioned North Korean state-funded cybercrime organization.

“These charges should serve as yet another warning to those who think they can turn to cryptocurrency to conceal their crimes and hide their identities, including cryptocurrency mixers,” said Attorney General Merrick B. Garland when the charges were announced. “It does not matter how sophisticated your scheme is or how many attempts you have made to anonymize yourself, the Justice Department will find you and hold you accountable for your crimes.”

The charges against Tornado Cash’s founders are not wholly unexpected, coming as they do a year to the day after the Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned the Ethereum-based mixer for its alleged connection with Lazarus Group.

Background

The Treasury Department accused the mixer in 2022 of having aiding criminal actors with money laundering since it was founded in 2019, including hundreds of millions of dollars allegedly stolen by Lazarus Group hackers.

On August 8, 2022, OFAC blacklisted Tornado Cash and any Ethereum address that interacts with the mixing service, making it illegal for U.S. citizens, residents, and companies to receive or send money through the service. The Treasury Department accused it of laundering more than $7 billion in digital assets, $455 million of which were believed to have been stolen in 2022 by the Lazarus Group.

“Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States,” said Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, at the time of the blacklisting.

“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”

Storm, who was arrested in the state of Washington the same day the DOJ charges were unsealed, will face the brunt of the repercussions for Tornado Cash’s money laundering and sanctions violations, with fellow co-founder Semenov in Russia and out of the DOJ’s jurisdictional reach.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of group—from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.