Dutch regulators arrest money launderer using Tornado Cash, highlighting heightened scrutiny on such tech crimes

The Financial Intelligence Unit Netherlands (FIOD) announced on 8/12 that a 29-year-old man in Amsterdam was arrested for allegedly using the decentralized mixer protocol Tornado Cash to conceal criminal money flows and facilitate money laundering activities. FIOD stated that multiple arrests may follow. FIOD emphasized that advanced technologies facilitating money laundering activities are under close scrutiny and are subject to effective investigation.

The Financial Intelligence and Investigation Service (FIOD) of the Netherlands announced on August 12th that a 29-year-old man in Amsterdam was arrested on suspicion of using the decentralized mixing protocol Tornado Cash to conceal the flow of criminal funds and facilitate money laundering activities. FIOD stated that multiple arrests may follow. FIOD emphasized that advanced technologies facilitating money laundering activities are under close scrutiny and that they have the capabilities to conduct effective investigations.

The regulatory authority in the Netherlands revealed that a criminal investigation into Tornado Cash was initiated in June 2022. Tornado Cash provides cryptocurrency mixing services that can obscure the source or destination of cryptocurrencies, and the service rarely verifies the source of the cryptocurrencies, mostly used by users to increase the privacy of their transactions. Tornado Cash operates through a decentralized autonomous organization (DAO) on the internet, where governance members make decisions recorded in code known as smart contracts.

FIOD suspects that Tornado Cash has been used for a significant amount of online criminal activities. The protocol was sanctioned by the U.S. Office of Foreign Assets Control (OFAC) on August 8th, and several businesses such as Circle have declared their cooperation. FIOD mentioned that this investigation involves serious fraud, environmental crimes, and asset seizures.

Update: It has been confirmed that the arrested individual is Alexey Pertsev, who was involved in the development of Tornado Cash, shocking the cryptocurrency community. Many believe that creating code should be protected as freedom of speech, and being arrested for illegal activities using that code is unreasonable.

Another surprising discovery in the cryptocurrency community is that core developer of Yearn, Banteg, found that popular decentralized protocols like Uniswap, Ren, Balancer, Oasis, and Aave have implemented user address monitoring codes in their interfaces. For example, Aave and Balancer block sanctioned addresses, and these services cooperate with compliance technology company TRM Labs. Larry Cermak, VP of The Block, commented: "I think ultimately there's no way around some sort of vetting and KYC on the front end, especially for U.S. companies, but the efficiency and speed at which every single RPC endpoint complied is just mind-blowing. Infura and Pocket Network have both complied with sanctions."