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Alexey Pertsev Guilty of Money Laundering: Tornado Cash Developer Jailed For 64 Months

Last Updated May 15, 2024 1:15 PM
Teuta Franjkovic
Last Updated May 15, 2024 1:15 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Tornado Cash developer Alexey Pertsev is guilty of laundering $1.2 Billion.
  • A court in the Netherlands sentenced him to 64 months in prison.
  • Pertsev’s conviction questions the balance between financial privacy and anti-money laundering laws in DeFi.
  • The crypto community stands behind Pertsev despite legal battles, advocating for privacy rights.

On Tuesday, a Dutch court convicted  Tornado Cash developer Alexey Pertsev of laundering $1.2 billion through the cryptocurrency mixing service.

A judge at the s-Hertogenbosch court ruled Pertsev, a 31-year-old Russian national residing in the Netherlands, was guilty of money laundering. Pertsev will now spend the next 64 months in prison.

Conviction of Alexey Pertsev May Affect Privacy in DeFi

A judge in the three-member panel that convicted Pertsev stated:

“Tornado Cash in its nature and functioning is a tool intended for criminals. The criminal user is fully facilitated.”

During Pertsev’s trial, prosecutors said that he failed to put adequate measures in place to stop criminals misusing Tornado Cash.

His defense argued that the prosecution overlooked the open source and automated nature of the smart contracts that underpin Tornado Cash. Pertsev also said that it was unfair to hold him responsible for the actions of Tornado Cash’s users. This was, he said, because they were inherently anonymous and operated independently. Tornado Cash itself is a decentralized protocol designed to conceal the transaction histories of public records on the Ethereum blockchain.

Halpin: Jailing Privacy Tech Developer for North Korea’s Misuse Sets Dangerous Precedent

Harry Halpin, CEO of blockchain-based privacy firm Nym, told CCN that Pertsev’s jailing was a “tragedy”. He said developers were going to prison because malicious state actors in North Korea were using their software.

He added:

“By that logic, the builders of roads should be punished when Daesh uses cars to mow down innocent people. Therefore, as privacy-enhancing technologies are historically embraced by EU and Dutch law via the GDPR, I see no reason for Alex to not lodge an appeal in the European Court of Human Rights in Strasbourg eventually, an appeal he would likely win.”

Halpin further added that, according to most jurisdictions and FinCEN guidance in the USA, creating anonymity technology isn’t illegal. However, using such technology for illicit activities like money laundering is. Given that Tornado Cash can be used legally, Halpin questioned why the court presumed Pertsev was actively involved in money laundering without definitive proof.

He also argued that if the court;s reasoning were to be applied consistently, then bankers should also face jail time, since the vast majority of money laundering—conducted by both state and non-state actors—occurs through traditional banking.

He said:

“Nonetheless, GDRP compliance and even OFAC compliance should be possible without creating centralized identity databases. I look forward to more research and improvement in this area, but without double standards.”

Anonymity vs Anti-Money Laundering Laws

The trial saw a collision between blockchain anonymity and existing anti-money laundering laws. Pertsev and his team claimed their software was a solution to privacy issues inherent in the transparent Ethereum blockchain.

During the trial, Pertsev’s defense lawyer, Keith Cheng, emphasized  that the open source nature of the smart contract code made it impossible for its creators to control how it was used. He also said contributors operated in a decentralized manner without a traditional hierarchical structure.

However, prosecutors challenged this. They said new technology does not stop people having the duty to prevent criminal activities. They also argued that Tornado Cash functioned more like a traditional company than a leaderless platform and worked with over $7 billion in laundered money. This included thefts by North Korea’s Lazarus Group. This group is accused of carrying out several high-profile crimes, including the $625 million exploit of the Axie Infinity Ronin Bridge in March 2022.

Developer Arrests Spark Community Support Amid Legal Battles

In August 2022, the US Treasury sanctioned Tornado Cash. Shortly after, Alexey Pertsev was arrested in a suburb of Amsterdam. Pertsev faced money laundering charges revealed by prosecutors in November 2022, and he was released on bail in April 2023.

Roman Storm, another Tornado Cash developer, faces charges in the US. These include money laundering, operating an unlicensed money transmission business, and conspiring to violate US sanction laws. His trial will start on September 23.

The crypto community has rallied  around Pertsev. Despite the difficulty of following the legal proceedings in the Netherlands—made by the late disclosure of Pertsev’s indictment and the use of Dutch in court—industry support has been robust. This includes petitions, funding for legal fees, and public declarations of his innocence from affected protocols.

While Pertsev and Storm’s legal battles are officially separate, the outcome of Pertsev’s trial might hint at potential outcomes for Storm.

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