- J Huang and S Pettigrove
Tornado Cash prosecution lifts off
The prosecution of Alexey Pertsev, a blockchain developer allegedly involved in the development of the infamous crypto-mixer, Tornado Cash, kicked off last week with a hearing in the Netherlands.
The trial follows Pertsev's arrest in the Netherlands in August, days after the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in connection with the alleged laundering of illicit funds by North Korean hackers.
The sanctioning of Tornado Cash has been highly controversial, sparking debate over whether Tornado Cash itself was a form of technology or an entity which could properly be the subject of US sanctions. Coin Centre, a US-based industry group, commenced proceedings in the United States alleging that OFAC had exceeded its authority by sanctioning Tornado Cash and flagging concerns over digital privacy.
In November, OFAC doubled down on its decision by redesignating Tornado Cash as a person or entity subject to US sanctions and clarifying its previous guidance on how to comply with the sanctions.
The Pertsev hearing offered, for the first time, a clear understanding of the charges against the developer. The prosecution asserts that Tornado Cash was used to place almost 75% of all crime-related cryptocurrency on the Ethereum blockchain, hence violating Dutch law which makes it illegal to conceal or disguise the origin and movement of funds.
The prosecution further alleges that records of internal conversations show Pertsev and two co-developers ran Tornado Cash like a business, discussing management and operational decisions, and that they could outvote other holders of the protocol’s TORN tokens. The prosecution nevertheless conceded that they are still trying to decipher how Tornado Cash’s governance works, and to prove that Pertsev profited from funds that passed through the protocol. The prosecution claims to have found large sums of money and cryptocurrency in Pertsev's name in various places around the world and have also alleged that Pertsev couldn't have "afforded his rented house and expensive Porsche" relying on income from his employment at a cybersecurity firm alone.
Pertsev has denied the charges against him and his lawyers appear to be positioning his defence on the basis that Pertsev himself was only a developer and not a party to the concealment of any funds:
It's clear to us that these judges are not as familiar with the subject matter [of how crypto works] as they should be.
The core focus of last week's hearing was whether and how long Pertsev should stay detained with the Dutch Court ordering that he should remain in detention at least until February. The substantive merits of the criminal charges and defenses remains to be considered.
The Pertsev prosecution will continue to attract attention from the DeFi community given that the outcome of the case could have important ramifications for the liability of developers involved in the development of DeFi applications.