- DOJ eyes criminal charges against Dragonfly leaders over Tornado Cash links.
- Emails show Schmidt, Qureshi debated adding KYC to Tornado Cash.
- Tornado Cash helped launder $900K for North Korean cyber attackers.
The United States Department of Justice (DOJ) is actively considering criminal charges against executives at the crypto venture capital firm Dragonfly. The investigation is connected to the controversial cryptocurrency mixer Tornado Cash. The DOJ is especially interested in Tom Schmidt, a general partner at Dragonfly, and other unnamed people related to the firm.
DOJ Links Tornado Cash to $900K Laundered by North Korean Hackers
The news was revealed at a recent court hearing, where Assistant U.S. Attorney Rehn revealed that Schmidt and others are targets of investigation. The journalist Eleanor Terrett later posted this revelation on social media. The prosecutor made a statement and then requested that the transcripts not be shared with the public. He wanted to keep the details private. This request showed how sensitive the ongoing inquiry was.
According to the trial process, prosecutors introduced email messages between Roman Storm, one of the Tornado Cash founders, and Dragonfly leaders such as Schmidt and Haseeb Qureshi. According to the emails, they argued whether to include Know Your Customer (KYC) capabilities into the Tornado Cash system. As per the court records, Tornado Cash had once considered measures to become compliant with regulations. These initiatives, however, never came to pass.
In August 2022, the U.S. Treasury sanctioned Tornado Cash, a decentralized program to obscure crypto transactions. The government states that it has been used to launder money associated with cybercrime, like that of North Korean state-sponsored hackers. Only last week, the DOJ indicted four North Korean nationals for using the same platform to transfer about \$900,000 in cryptocurrency. As a result, they were exposed for posing as remote IT workers to carry out the scheme.
The involvement of Dragonfly as a venture backer of Tornado Cash is now drawing increasing regulatory scrutiny. This poses some legal issues regarding the degree to which investors can be held responsible of the acts of the projects they invest in. Should charges be pressed, the case may become a landmark case in crypto finance. The regulators around the globe are keenly observing which way the investor liability in decentralized projects can be construed in future.
Tornado Cash Trial to Resume Next Week with Closings
Schmidt, using the services of his lawyers, has claimed his Fifth Amendment rights and declined to testify. His trial defense has gone further to demand that he be given immunity to testify on important points. But it is not clear whether he will agree to testify despite the granting of immunity. Further information will be given when the trial restarts next week. It is also when the closing arguments will be done.
In the meantime, other associates affiliated with Tornado Cash are already being punished by the law. One of the co-founders, Alexey Pertsev, is in custody in the Netherlands, whereas Roman Semenov has gone missing. The ever-widening investigation by the DOJ now seems to be extending even to the developers themselves to consider the role of venture capitalists and their possible liability in financing sites later employed in crime.
As the case progresses, it may give more information on the way the U.S authorities intend to control the crypto infrastructure, particularly in scenarios where privacy tools and cross-border payments are involved.
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