A three-judge Dutch court convicted Tornado Cash developer Alexey Pertsev on Tuesday of laundering $1.2 billion in illicit assets on the crypto mixer’s platform.
The panel is expected to sentence Pertsev, a 31-year-old Russian national living in the Netherlands, on Tuesday as well.
Pertsev’s lawyers will have 14 days to appeal the judges’ decision.
Chilling effect
The verdict will reshape the course of privacy in decentralised finance by fostering a “chilling effect” on the development of open source software that provides users with financial privacy tools, experts say.
During Pertsev’s trial in March, prosecutors argued that the software developer did not do enough to prevent criminals from using Tornado Cash.
The defence countered that prosecutors didn’t consider the open source and automated nature of the smart contracts operating at the heart Tornado Cash. Pertsev said it was wrong to hold him accountable for Tornado Cash’s users when they are, by design, anonymous and independent.
Tornado Cash is a decentralised protocol designed to obfuscate the transaction history of otherwise public records on Ethereum.
The trial turned on whether laws designed to curb money laundering could accommodate the innovations of blockchain-based financial platforms, as well as values such as anonymity.
Pertsev and his co-developers argued they offered a solution to an inherent privacy problem on the publicly visible and immutable Ethereum blockchain.
During the trial, Keith Cheng, Pertsev’s defence lawyer, said neither his client or others could stop users from using the open source smart contract code any way they like. And contributors were set up as a decentralised organisation, with no single person in charge like a traditional company.
But prosecutors rejected the idea that the virtues of technology outweighed the legal obligations to prevent platforms from helping criminals and sanctioned entities, such as North Korea and its cybercrime groups, to conceal the origins of stolen assets.
More than smart contracts
Public prosecutor Martine Boerlage said the idea that Tornado Cash ran without leadership was false.
“Tornado Cash is more than just smart contracts,” Boerlage argued at trial. “It was run like a company.”
And that enterprise was used to launder crypto from hacks and heists worth over $7 billion, according to the US Office of Foreign Assets Control.
Key criminals to abuse the protocol is the North Korean cybercrime organisation, Lazarus Group, authorities said.
The hacker group is accused of draining multiple crypto exchanges and decentralised protocols. Among them is the record-breaking $625 million exploit of Axie Infinity Ronin Bridge in March 2022.
The US Treasury sanctioned Tornado Cash in August 2022. Pertsev, who lives in an Amsterdam suburb, was arrested days later. He was detained without charges at first.
Prosecutors disclosed money laundering charges in November 2022. Pertsev was released from jail in April 2023.
Roman Storm, a fellow Tornado Cash developer, is charged in the US for money laundering, conspiring to operate an unlicensed money transmitter and conspiring to violate US sanction laws.
Storm’s trial is scheduled for September 23.
Advocacy efforts
The crypto industry has thrown its support behind the developer in advocacy efforts to protect privacy and support open source tech development.
Pertsev’s case in the Netherlands has been far more opaque and difficult for industry to follow. The prosecution only disclosed Pertsev’s indictment one week ahead of his trial.
The trial and series of hearings beforehand were also conducted in Dutch, limiting international accessibility.
Still, Pertsev has won support ranging from petitions, attempts to cover his legal fees, and statements from hacked protocols declaring him innocent.
While legally Storm and Pertsev’s cases are separate, some experts speculate that Pertsev’s guilty verdict may foreshadow Storm’s fate.
This is a developing story.
Inbar Preiss is DL News’ Brussels correspondent. Contact the author at inbar@dlnews.com.
