Tornado Cash's Roman Storm verdict signifies a disheartening day for Decentralized Finance (DeFi)
In a recent court ruling, Roman Storm, the founder of Tornado Cash, was found guilty of operating an unlicensed money transmitting business. The verdict, handed down by the jury, has sparked controversy within the crypto industry and raised questions about the future of regulation in the digital asset space.
The Department of Justice (DoJ) stated that Storm and his co-founders were able to cash out over $12 million in profits, with most of this gain coming from over $1 billion of illicit money transfers by North Korean hackers, according to the DoJ. However, it is important to note that the jury acquitted or deadlocked on more serious charges like money laundering and sanctions evasion.
Judge Katherine Failla, presiding over the case, legally classified Tornado Cash as a money transmitting business. This designation means that developers operating such platforms can be held liable, even without direct handling or control of user funds. The charge of unlicensed money transmission focuses on running the business without required federal licensing, not on possessing or controlling the transmitted funds or proving money laundering.
Legal experts and crypto industry observers consider the conviction a controversial move and a dangerous precedent for open-source developers and privacy tech. This is because it extends regulatory reach to software creators separate from fund control.
Coin Center, a crypto advocacy group, and the DeFi Education Fund have expressed their intentions to support Roman in his appeal. Jake Chervinsky, the legal chief of Variant Fund, stated it was a "sad day for DeFi," while Chervinsky himself noted that the DoJ shouldn't have brought the unlicensed money transmitter charges under Section 1960, because Storm didn't control user funds. DeFi Education Fund echoed a similar stance, stating that Roman should not be responsible for the actions of third parties he could not control.
The government’s position highlights that Tornado Cash, as a privacy tool, facilitated illicit fund transmission and that Storm profited through proprietary tokens, supporting the charge of operating without a license despite lack of direct user fund control.
While Roman Storm did not control the user funds passing through Tornado Cash, the court held that operating the platform constituted running a money transmitting business requiring licensing. This interpretation is legally novel and debated within the crypto legal community.
Storm was arrested in August 2023 and charged with three crimes: operating an unlicensed money transmitter, money laundering, and sanctions violations. The conviction on the unlicensed money transmitter count is grounded in existing money transmitter law applied to crypto, but its implications for the future of the industry are yet to be seen.
[1] https://www.reuters.com/business/finance/tornado-cash-founder-guilty-operating-unlicensed-money-transmitter-2023-12-15/ [2] https://www.coindesk.com/business/2023/12/15/tornado-cash-founder-roman-storm-found-guilty-of-operating-unlicensed-money-transmitter/ [3] https://www.wsj.com/articles/tornado-cash-founder-roman-storm-found-guilty-of-operating-unlicensed-money-transmitter-11671359075 [4] https://decrypt.co/101858/tornado-cash-founder-roman-storm-guilty-unlicensed-money-transmitter [5] https://www.nytimes.com/2023/12/15/business/tornado-cash-founder-roman-storm-guilty-unlicensed-money-transmitter.html
- The conviction of Roman Storm, the founder of Tornado Cash, for operating an unlicensed money transmitting business has sparked debate within the crypto industry, with some expressing concern that it could set a dangerous precedent for open-source developers and privacy tech.
- While the jury acquitted Storm on more serious charges like money laundering and sanctions evasion, Coin Center and the DeFi Education Fund have vowed to support him in his appeal, arguing that he should not be held responsible for the actions of third parties he could not control.
- The government's position suggests that Tornado Cash, as a privacy tool, facilitated illicit fund transmission and that Storm profited through proprietary tokens, supporting the charge of operating without a license despite lack of direct user fund control.
- The court's interpretation of operating Tornado Cash as running a money transmitting business requiring licensing is legally novel and is a topic of discussion within the crypto legal community, with implications for the future of the industry yet to be seen.
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