By Evan Spicer
Director of Cryptocurrency Investigations
MyChargeBack
The founders of Tornado Cash, a decentralized protocol for private transactions on the Ethereum blockchain, have been charged with money laundering by the U.S. Department of Justice. The charges allege that they used their protocol to facilitate the transfer of funds from illicit sources, such as ransomware attacks and dark web markets.
Tornado Cash is a non-custodial service that allows users to send and receive ether (ETH) anonymously. Users deposit ETH into a smart contract and receive a secret note that can be redeemed for the same amount of ETH at a later time. The protocol uses “zero-knowledge proofs” to ensure that the sender and receiver of the funds are not linked.
However, according to the indictment, the founders of Tornado Cash also operated a hidden service that allowed users to exchange their secret notes for other cryptocurrencies, such as Bitcoin (BTC) or Monero (XMR). This service allegedly enabled users to launder their ETH and evade detection by law enforcement.
The DOJ claims that the founders of Tornado Cash received a percentage of the fees from each exchange, and that they knowingly facilitated transactions from criminal sources. The indictment cites several examples of transactions that were traced back to Tornado Cash, including funds from ransomware attacks on hospitals, schools, and businesses.
The DOJ also alleges that the founders of Tornado Cash failed to comply with the anti-money laundering regulations that apply to money service businesses. They did not register their service with the Financial Crimes Enforcement Network (FinCEN), nor did they implement any customer identification or verification procedures.
The charges against the founders of Tornado Cash are part of a larger crackdown on the use of cryptocurrencies for money laundering and other illegal activities. The DOJ has recently announced several cases involving cryptocurrency-related crimes, such as the seizure of $2.3 million in bitcoin from the Colonial Pipeline ransomware attack, and the arrest of a man who sold fake COVID-19 vaccination cards for bitcoin.
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