Coin Center Questions Tornado Cash Indictments in Light of FinCEN Guidance

Two former developers of Tornado Cash, Roman Storm and Roman Semenov, have been indicted on charges including conspiracy to operate an unlicensed money-transmitting business. The indictment, issued by the United States Office of Foreign Asset Control (OFAC) on August 23, has raised questions in the crypto community, particularly regarding its alignment with existing Financial Crimes Enforcement Network (FinCEN) guidance.

Coin Center, a crypto advocacy group, has expressed concerns over the indictment, suggesting that the charges may not align with the definitions and guidelines provided by FinCEN. Peter Van Valkenburgh, Coin Center's research director, highlighted that the indictment's primary claim against the defendants is that they "engaged in the business of transferring funds on behalf of the public" without registering with FinCEN.

However, Valkenburgh points to the 2019 FinCEN Virtual Currency Guidance which states, "An anonymizing software provider is not a money transmitter." This guidance further elaborates that those who use such software for their transactions could be considered either users or money transmitters, depending on the transaction's purpose. Valkenburgh argues that while Tornado Cash's tools might have facilitated users in transmitting money using the protocol’s smart contracts, this does not necessarily categorize the developers as money transmitters.

The indictment also alleges that Storm and Semenov had "complete control" over Tornado Cash's smart contracts. Addressing this, Valkenburgh emphasized the variable nature of Ethereum smart contracts, where control can range from none to total. He stated that the degree of control is a crucial factor in determining if one is involved in money transmission. The indictment, according to Valkenburgh, does not provide clear details on the nature of the defendants' control over the smart contracts.

Furthermore, the OFAC indictment suggests that by transferring funds on behalf of the public, Storm and Semenov were operating an unlicensed money transmission service and should have registered with FinCEN. On August 23, Semenov was added to OFAC’s list of Specially Designated Nationals and Blocked Persons, while Storm was arrested in Washington state.

This case has broader implications for the crypto community. Valkenburgh believes that the outcome could significantly influence the legal rights of U.S. citizens to develop and publish software in the future.

In related news, another Tornado Cash founder, Alexey Pertsev, was detained by Dutch authorities in August 2022 and subsequently released in late April.