In a legal sense, the case of Alexey Pertsev is more significant for the future of DeFi than the fraud cases against SBF and Do Kwon or the anti-money laundering violations by Zhao Changpeng.
Written by: Nian Qing, ChainCatcher
Yesterday, Alexey Pertsev, a 31-year-old Russian citizen and developer of Tornado Cash, was sentenced to 5 years and 4 months in prison in the Netherlands for laundering $2.2 billion on a cryptocurrency mixer platform. Pertsev had previously been detained for eight months, which will be deducted from his sentence, leaving him with four and a half years to serve. Pertsev’s lawyer will have 14 days to appeal the judge’s decision.
It is widely believed within the industry that this case is not only a turning point for DeFi regulation but also a game-changer for the progress of crypto privacy and will have a “chilling effect” on the global open-source community. The conviction of an open-source software developer signifies that Web3 smart contract developers will be subject to traditional legal frameworks.
In the judgment of Alexey Pertsev’s case, the judge and prosecutor stated that “Tornado Cash is a tool designed for criminals” and “Tornado Cash operates more like a company than just a smart contract.”
Last August, the co-founders of Tornado Cash, Roman Storm and Roman Semenov, were charged with money laundering and conspiracy to violate the International Emergency Economic Powers Act. The maximum sentence for these charges is 20 years in prison. They were also charged with conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of 5 years in prison.
Currently, Roman Storm has been arrested in Washington State, USA, while Roman Semenov is still at large. Furthermore, Roman Storm’s trial is scheduled for September 23. The verdict of Alexey Pertsev will directly impact the outcome of Storm’s trial.
It is worth mentioning that after Pertsev’s sentencing, the crypto community continued to transfer funds to the “Free Alexey & Roman” donation fund on Juicebox, expressing support for the Tornado Cash developers and the “crypto spirit.” Messages like “privacy is not a crime,” “code is speech,” “defend freedom,” and “XX stands with privacy and open-source public goods” were left as a show of solidarity.
Timeline of the Tornado Cash case:
– August 6, 2019: Tornado Cash is launched, allowing users to send Ethereum cryptocurrencies anonymously.
– September 13, 2019: The US Office of Foreign Assets Control (OFAC) imposes sanctions on North Korean cyber organizations, including the Lazarus Group.
– May 10, 2020: Tornado Cash completes a “trusted setup ceremony” to burn the management permissions of all deposit pools and updates its smart contract. Tornado Cash becomes a permanently autonomous code that is not controlled by any party. A total of 1,114 people participated in the ceremony.
– June 4, 2020: Tornado Cash developers deploy an optional compliance tool for users to disclose their transaction history when needed.
– September 25, 2020: Hackers steal $275 million worth of cryptocurrencies from the KuCoin exchange. This is one of the largest hacking incidents connected to Tornado Cash, according to Dutch prosecutors.
– March 23, 2022: The Axie Infinity Ronin bridge loses approximately $625 million in a hacking attack. This is one of the largest cryptocurrency hacking attacks to date, with the criminals using Tornado Cash for money laundering.
– May 6, 2022: OFAC sanctions the first virtual currency mixer, Blender, used by North Korean cybercrime groups.
– June 24, 2022: The Lazarus Group attacks the Harmony Horizon bridge, transferring nearly $100 million worth of stolen cryptocurrencies through Tornado Cash. According to Dutch prosecutors, this is another major hacking attack involving money laundering through Tornado Cash.
– August 8, 2022: OFAC sanctions Tornado Cash for facilitating $7 billion in money laundering.
– August 9, 2022: The Tornado Cash website is shut down, and the project’s code repository is removed from GitHub. Co-founder Roman Semenov’s GitHub account is suspended.
– August 10, 2022: Alexey Pertsev is arrested in the Netherlands and imprisoned without public charges.
– October 12, 2022: Coin Center, a non-profit organization focusing on cryptocurrency policy issues, sues OFAC over the sanctions on Tornado Cash.
– November 22, 2022: Dutch prosecutors disclose the charges for the first time during a court hearing.
– April 20, 2023: Alexey Pertsev is released pending trial.
– August 23, 2023: The US Department of Justice charges Tornado Cash developer Roman Storm and imposes sanctions on developer Roman Semenov.
– August 25, 2023: Tornado Cash co-founder Roman Storm is granted bail.
– December 7, 2023: Binance delists Tornado Cash’s native token, TORN.
– March 25-26, 2024: Alexey Pertsev undergoes a two-day trial in ‘s-Hertogenbosch, the Netherlands.
– April 5, 2024: The US Trade Association submits a brief defending Roman Storm and addresses each charge against him.
– May 14, 2024: Alexey Pertsev is sentenced to 64 months in prison for money laundering.
– September 23, 2024: Roman Storm’s trial is scheduled to take place in the United States.
The controversy and focus of the trial: the identity boundaries of smart contract developers
The focus of the Tornado Cash case trial is whether the current anti-money laundering laws are applicable to blockchain/crypto financial platforms.
During the trial, Pertsev’s defense lawyer, Keith Cheng, argued that no one, including Tornado Cash developers, can prevent others from using open-source smart contract code. The contributors to a smart contract are a decentralized organization, not a single responsible individual like a traditional company.
Last August, after Roman Storm and Roman Semenov were charged in the United States, Coin Center expressed its support, stating that the recent charges against Tornado Cash contradict the Financial Crimes Enforcement Network (FinCEN) guidance on financial crimes.
Their core argument is that Tornado Cash developers only provide “pure software development or communication services” and do not engage in “businesses that involve transferring funds on behalf of the public.” They argue that judicial authorities should not confuse “service providers” with “fund transferor identities” and that the only control Tornado Cash has over the smart contract is changing the cryptographic logic related to privacy functions, without any ability to view or move user funds.
In early April, Coin Center submitted a “friend of the court” statement in the criminal case against Roman Storm in the Southern District of New York, requesting the court to strike the prosecution’s vague and biased descriptions of Tornado Cash. They argued that open-source software developers cannot control the actions of others who happen to use their tools and that the release of Tornado Cash code is protected by the US Constitution. Additionally, Coin Center argued that the prosecution and judgment in this case are “relevant to those who engage in purely open-source software development, code publication, and speech work” and called for the protection of the rights to develop and release software in the United States.
In late March, Roman Storm’s lawyers also mentioned in their submission to the US District Court for the Southern District of New York that Tornado Cash, as a non-custodial smart contract, gives users full control over their assets without relying on any service provider or third-party custodian. Writing code falls under the category of freedom of speech and is protected by the First Amendment of the US Constitution.
However, in the trial on the 14th, the court rejected these arguments, stating that no technological innovation can go beyond the legal obligation to prevent platforms from aiding criminals and sanctioned entities in concealing stolen assets’ origins. Prosecutor Martine Boerlage classified Tornado Cash as “not just a smart contract; it operates more like a company.”
The US Department of Justice reiterated that its indictment is not related to whether the computer code of Tornado Cash has freedom of speech or is protected by the First Amendment. The defendants are not charged for publishing computer code but for using it to facilitate profitable illegal activities.
The Department of Justice further explained that banks use computer code to process financial transactions. If that code performs the work of a legally defined money transmitter, it is not just speech but code that people must ensure is implemented in a manner that does not violate money transmission laws. Tornado Cash is both a part of the code and a part of the speech and business. Overall, it is a human creation. Storm did more than just publishing code; he operated a business and made operational decisions over the years. The protocol of Tornado Cash is not equivalent to the business of Tornado Cash. Just because Tornado Cash has some open-source code does not mean that all the actions of Roman Storm, as the owner of the Tornado Cash business, related to that code are protected by the Constitution.
Petitions, protests, and donations
Cryptocurrency lawyer David Lesperance has stated that, legally speaking, Alexey Pertsev’s case is more important for the future of DeFi than simple fraud cases against SBF and Do Kwon or Zhao Changpeng’s failure to implement the required anti-money laundering protocols. It is precisely because the Tornado Cash case is so representative that the three founders have received various forms of support.
The crypto community, especially the developer community, strongly protested Pertsev’s arrest. Besides petitions and support on various social media platforms, there were also people distributing posters outside the Dutch court in support of Alexey Pertsev.
In August 2022, some anonymous crypto users even protested through a poison attack by sending small amounts of ETH to addresses belonging to well-known crypto figures, expressing their dissatisfaction with the latest round of US government sanctions. Notable figures like CZ, Justin Sun, Coinbase CEO Brian Armstrong, and artist Beeple were “poisoned.”
Furthermore, community members initiated a donation campaign called “Free Alexey & Roman” on the crowdfunding platform Juicebox on January 22 this year to help Tornado Cash co-founder Roman Storm and developer Alexey Pertsev with their legal defense funds. As of now, the fund has received a total of 834 donations, amounting to 548.49 ETH, approximately $1.6 million. Ethereum co-founder Vitalik Buterin, Kraken co-founder Jesse Powell, and others have made donations to the fund.
It is worth mentioning that after Pertsev’s sentencing, the number of donations suddenly increased, and messages like “privacy is not a crime,” “code is speech,” “defend freedom,” and “XX stands with privacy and open-source public goods” were left as a show of support for the Tornado Cash developers and the “crypto spirit.”
The other side of the coin
Despite Pertsev himself emphasizing that he is just a programmer with no criminal intent, he expressed “disappointment” that Tornado Cash was used by criminals to conceal illegal gains. However, he felt powerless to stop it.
During the trial, when the judge asked Pertsev if he took the criminal behavior seriously enough, chat records between Pertsev and co-developers Roman Storm and Roman Semenov were brought up. Pertsev responded with a “haha” to the news of the Axie Infinity Ronin Bridge being hacked, which resulted in the loss of $625 million. Pertsev clarified that it did not mean he found it funny but that it was his habit to express surprise.
Furthermore, an objective fact is that Tornado Cash remains the largest crypto mixer since being sanctioned. Hackers and protocol attackers continue to exploit this tool for money laundering.
On one hand, the conviction of Tornado Cash developers threatens the future of technological development and privacy. On the other hand, the reality is that from a legal perspective, technology cannot be neutral; it is inherently built on human relationships.
Tags:
DeFi
STO
Tornado Cash
Anti-money laundering
Binance
Smart contracts
Netherlands
Source link:
https://www.chaincatcher.com/article/2124419
Note: The opinions expressed in the article do not constitute investment advice.
Original article link: https://www.bitpush.news/articles/6733574
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