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Earlier this week, Netherlands’ financial watchdog the Fiscal Information and Investigation Service (FIOD) took a 29-year-old developer into custody. The FIOD carried out the arrest in Amsterdam due to suspicions of his involvement in money laundering operations using crypto mixer Tornado Cash.
Tornado Cash Facilitating Crypto Crimes
The arrest comes shortly after the US Department of Treasury announced sanctions against the privacy protocol. In a release, the Treasury cited Tornado Cash’s role in various crypto crimes since its inception in 2019. Criminals like the Lazarus Hackers have reportedly used its services to cart off stolen funds with the platform failing to act against them.
The suspect code developer arrested allegedly has ties to the Tornado Cash protocol. FIOD shared news of the suspect’s arrest in a publication where they also rehashed the Treasury’s grievances with Tornado Cash. The agency explained that the privacy platform enables users to hide the source or destination of their digital assets. Additionally, they noted Tornado Cash hardly ever runs checks on the assets making it easy to conceal criminal origins.
FACT suspects that through Tornado Cash has been used to conceal large-scale criminal money flows, including from (online) thefts of cryptocurrencies (so-called crypto hacks and scams). These included funds stolen through hacks by a group believed to be associated with North Korea.”
Reason for Arrest
The latest arrest is not FIOD’s first altercation with Tornado Cash. In June, FIOD’s Financial Advanced Cyber Team (FACT) launched a criminal investigation against the crypto mixer.
FACT also raised concerns that the crypto mixer has been facilitating large-scale unlawful asset transfers. The team’s investigations likewise revealed that more than $7B has been laundered via Tornado Cash in recent years. According to data from the probe, Tornado Cash developers have probably made considerable profit from these illegal operations.
The developer from the agency’s recent arrest is one such suspect. The FIOD alleges that the 29-year-old has aided the flow of stolen funds via the crypto mixer. He may have already appeared before an examining judge in Den Bosch today, going by the release.
Arrest Draws Criticism
FIOD’s decision to arrest the crypto protocol developer did not sit well with many crypto advocates. Indeed, earlier this week Ethereum’s Vitalik Buterin had questioned Tornado’s recent sanction, revealing that he’d used the protocol recently for charity. In the same light, many advocates are emphasizing that Tornado Cash’s importance is beyond its recent accusations.
TheBlock and LinksDAO founder, Mike Dudas, questioned the arrest, citing that fraud was a collateral development on every financial network.
gonna have to arrest the developers behind swift, ach network, visa, mastercard because my understanding is that fraudulent transactions and money laundering occur on global financial networks
— Mike 🌪️as (🏌️♂️, ⛳️) (@mdudas) August 12, 2022
Lido co-founder Cobie also shared similar sentiment, albeit this time in a single cryptic tweet:
Welcome to the war on code
— Cobie (@cobie) August 12, 2022
FIOD to Make More Arrests
FIOD did note in its announcement it was ready to make multiple arrests. The financial watchdog is currently hyper-focused on emerging tech developments such as DAOs that may support money laundering. In the release, the agency explained that combating money laundering is a current priority for the Netherlands government.
Money laundering via decentralized autonomous organizations is a new phenomenon that is receiving explicit attention from the FIOD.”
Since the US added the privacy protocol to its list of sanctioned organizations, various entities have responded to the move. For example, stablecoin issuer Circle froze about 75,000 USDC linked to 44 Tornado Cash addresses. Similarly, on Thursday, MakerDAO creator Rune Christensen revealed possible plans to drop USDC for ETH amid Tornado Cash’s saga.