Monday, June 10, 2024

"I didn't launder the cash, your honor. The robot did."

Crypto enthusiasts protest the trial of Alexey Pertsev

As the multiple Tornado Cash legal cases wend their way through courts in the Netherlands and the U.S., we continue to learn how society's money laundering laws will be applied to some of the more unique financial entities being created on the new technological medium of blockchains.

Last month Alexey Pertsev, a co-creator and co-administrator of privacy platform Tornado Cash, was found guilty of money laundering by a Dutch court. (The full decision translated into English is here). Meanwhile, Roman Storm and Roman Semenov, Pertsev's colleagues, are under indictment in the U.S. for engaging in money laundering, among other charges. Separately, Tornado Cash continues to be sanctioned by the U.S. Treasury.

In general, I think a guilty verdict is the right decision. It would have been dangerous to find Pertsev innocent, since to do so would have given all sorts of hardened money launderers  the mob, drug lords, and terrorist networks  the perfect techno-legal loophole for avoiding future money laundering charge. Shifts in the underlying technology used for disguising dirty money should not be enough to turn a crime into a non-crime.

Before I get into my reasoning, here's some context for people who are new to the issue of Tornado Cash.

Tornado Cash was introduced by Pertsev, Storm, and Semenov in 2019 as a means for crypto users to enjoy privacy, but it wasn't long before thieves and hackers began to regularly deposit large amounts of stolen crypto into the utility to be obfuscated. This was plain as day to anyone who was watching. Blockchains are radically transparent (that's why privacy tools like Tornado are needed) which meant that everyone could watch in real-time as criminal trails converged on Tornado Cash. 

Court cases in both the U.S. and the Netherlands reveal that Pertsev and his colleagues were well-aware that illicit activity passing through Tornado, yet they continued to work on the utility anyways. This is important because possessing a "knowing" state-of-mind is a key ingredient to being found guilty of money laundering. If he had had no idea that the money being disguised was dirty, Pertsev could not have been charged in the first place.

Criminals were not the only users of Tornado. Licit actors who wanted privacy also deposited funds into the entity, including Ethereum co-creator Vitalik Buterin. But the presence of good transactions amongst the bad ones doesn't dilute the seriousness of the alleged crime. All it takes to trigger a money laundering charge is a few dirty transactions. "C'mon! 82% of the money was licit!" is no alibi.

Tornado Cash is by no means the crypto economy's first privacy platform. The original generation of privacy tools, so called "mixers" or "tumblers," began to emerge in the early 2010s with the likes of ChipMixer, Helix, Bitcoin Fog, Sinbad, and Blender. Anyone who required anonymity could send their bitcoins to the platform owner, who would proceed to commingle, or "mix," all incoming bitcoins in a single address under their control, thus rendering them untraceable. After some time had passed, the platform owner manually re-sent the now obfuscated bitcoins to their original sender, less a fee.

Like Tornado Cash, the first generation of privacy utilities was used by both criminals and regular folks seeking privacy. None of these original mixers have had happy endings. The owners of Bitcoin Fog and Helix, Roman Sterlingov and Larry Harmon, were both found guilty of money laundering and are currently serving jail sentences. Minh Nguyen, the administrator of ChipMixer, has been indicted for money laundering and is on the FBI's most wanted cyber list. Blender and Sinbad have both been sanctioned by the U.S. government.

Source

By any legal standard, these bad endings were well-deserved. They may have been technological novelties, but ChipMixer, Helix, Bitcoin Fog, Sinbad, and Blender were very much text-book examples of money laundering. The owners of these entities knew that some of the transactions they were participating in involved proceeds derived from criminal sources, yet despite this knowledge they proceeded to disguise them anyways. The only thing new about Helix and the other first generation mixers was the medium they were disguising  bitcoin instead of cash or deposits.

And so professional mixers like Harmon and Nguyen join a long line of traditional money launderers  dirty bankers, drug cash couriers, crooked remittance shop owners, and hawala operators. The law shouldn't be fooled by technological novelty, and in the case of the first generation of mixers, it wasn't.

That these were textbook cases of money laundering isn't disputed by the crypto community. Crypto advocates are a vocal bunch, and while they have loudly voiced their complaints about the legal action taken against Tornado Cash, they have for the most part quietly accepted the punishments meted out to the first generation privacy platforms. A legal fundraiser to support the Tornado Cash accused, for instance, has raised hundreds of thousands of dollars; there have been no equivalent efforts to raise a legal defence for Harmon, Sterlingov, or Nguyen. Crypto lobbyists have gone to war for Tornado Cash by launching court appeals and filing amicus briefs in its support. But when it comes to defending the Bitcoin Fog or Helix operators, or challenging the government's sanctioning of Sinbad and Blender  crickets.

The Tornado Cash legal cases have been more controversial than those of the first generation mixers thanks to a technical innovation in Tornado's construction. Most of us would consider this to be a relatively obscure change, but crypto enthusiasts see it as a defining one.

Harmon and his counterparts controlled their platforms outright, taking possession of the dirty crypto before manually sending it back to criminals in disguised form. Not so Tornado Cash. When it was built, a layer of automation was inserted between Tornado Cash's users and Pertsev and his colleagues.

Instead of sending their crypto to wallets controlled by the trio, as users did with Helix, crypto was now deposited by users into a set of automated pools. These pools were not managed on an ongoing basis by Pertsev and his colleagues. Rather, they were built using fully automated code on the Ethereum blockchain. Originally co-created by Pertsev in 2019, this code was frozen in time by the designers in early 2020, at which point it could no longer be upgraded or changed by anyone, even Pertsev. To this day the pools continue to operate, even though the Tornado Cash creators are either jailed or under indictment.
 
Other parts of the Tornado Cash platform are not so set-in-stone and remained under the control of Pertsev and his colleagues throughout. This includes the main website by which users accessed the automated pools, which was regularly upgraded over time, as well as the relayer service. (A relayer is a way to guarantee the privacy of Tornado Cash users). Pertsev and his colleagues profited from their ongoing control over the website and relayers.

The lawyers for Pertsev, Storm, and Semenov have argued that this layer of automated code exonerates the trio of money laundering. After all, if they no longer control what the utility is doing, then how can they be said to be operating a money laundering enterprise? The lawyers also argue that as writers of code, Pertsev, Storm, and Semenov are protected by speech laws, much like an author who has written a book. It is the code-is-speech claim that has particularity riled up the crypto community.

I don't like the idea of someone being sent to jail, but I think it's a good thing that the Dutch court chose not to accept these arguments.

Using go-betweens is a time-tested criminal strategy for distancing oneself from the crime. In more conventional money laundering operations, this strategy might involve separating the leader of a cash laundering operation from the actual dirty cash with a layer of underlings. In the age of crypto, no need to use living human underlings; just insert a buffer of unliving code.  

But the law shouldn't be fooled by artificial distances between a launderer and dirty money, whether those intervening layers be living people or code.

Allowing a buffer of automated code to absolve folks like Pertsev of money laundering would make it much easier to be a professional money launderer. Bad actors like Harmon and Sterlingov who have already been deemed by the courts to be criminals would suddenly have the perfect techno-legal loophole at their disposal if they decide to reengage in crypto laundering once their jail terms are up. Instead of manually running their operations as before, Harmon an Sterlingov could insert a mute layer of automated code between them and their illicit clients, their criminal mixing no longer being a crime.

But this would be an absurd state of affairs. A simple technological change to the way a criminal mixer administers their back office shouldn't convert them into a non-criminal.

The danger of the "it was the code that did it" defence extends beyond the crypto economy. In the much-larger traditional economy, laundering physical cash is a relatively common criminal profession. Take the fictional example of Marty Byrde, the star of Ozark. If the Tornado Cash defence were to be accepted in a court of law, then Byrde need only program a set of self-operating cash-handling robots to do most of his tasks for him, and he can get away scot-free. "I don't exercise any control over the packages of cash, your honor. The robots did!"

Or take the example of drug cash couriers, who run the risk of being convicted for money laundering when they move cash across the U.S.-Mexico border. Taking a cue from Tornado Cash, if a courier were to deploy an autonomous fleet of AI-powered drones instead, then when charged with a money laundering offence he or she need only invoke the now-standard defence: "it was the drones who controlled the cash, not me."

Taken to an extreme, the Tornado Cash defence means that money laundering effectively ceases to exist as a crime. All the culpability shifts onto the undead intermediaries, which can't be punished. This eclipsing of money laundering laws would be unfortunate. Professional money laundering is a key sector within the broader criminal economy, greasing the wheels for the entire enterprise. Without any legal defences against launderers, we are all much more vulnerable to crime-in-general.

In what follows, I want to provide a historical example of how the law should act when confronted with the changing tactics and technologies of money launderers.

Money laundering is a relatively new crime, but it has a much older predecessor in the crime of fencing, also known as receiving. The laws against fencing and money laundering are similar, the idea being to punish not the original criminals but the third-parties who knowingly participate in the crime by accepting dirty proceeds.

Any thief runs a big risk of being caught with stolen goods. At some point in the middle ages, specialized intermediaries, or fences, emerged to absorb this risk by accepting stolen property from professional thieves and redistributing it. Thieves could now offload their goods much quicker, thereby achieving a degree of safe harbor. For their part the fences themselves were safe from prosecution. After all, they hadn't committed the original theft, and accepting stolen property was not a crime.

The addition of specialized wholesalers to the thievery production process helped drive a rise in the incidence of theft, according to historian Rictor Norton. To close this loophole, fencing was criminalized in England in 1692. For the first time, a third-party who knowingly accepted stolen goods could be punished as an accessory to the original theft. The business of reselling hot property, risk-free until then, suddenly became much more dangerous.

The illegal fencing market quickly evolved new tactics. Enter Jonathan Wild, an incredibly successful launderer of stolen goods who, by the mid 1710s, is said to have been the "undisputed leader in the fencing business of London," according to marketing professor Ronald Hill. Wild evaded the 1692 anti-fencing law by never himself handling stolen property. Instead, he acted as an early version of Craigslist, but for stolen objects. He arm-twisted all of London's thieves to secretly report any robbery immediately to him, asking them to retain possession until he contacted them. At the same time, the unfortunate victims of those thefts were encouraged to approach Wild with requests to help locate their missing property.

Once Wild knew who was at both ends of a theft, he would pay the thief and tell him to return the goods to the victim using an anonymous porter. The happy victim got their stolen goods back, paying Wild a large reward for his troubles.

With Wild running circles around the law, Parliament passed an additional anti-fencing law in 1718 that punished anyone who took a reward under the pretence of helping a victim of theft, without actually prosecuting the original felon. In 1725, Wild was apprehended, tried, and condemned to death on the basis of this statute. 

A gallows ticket to view the hanging of Jonathan Wild (Wikipedia)

Now, a death sentence is extreme. But this is a good example of the law staying hip to both the changing technology of theft and its evolving division of labour. As the profession began to be subdivided into specialist thieves and an emerging class of allied wholesalers of stolen goods, lawmakers recognized that wholesaling was really just an appendage of theft, and thus fencing was criminalized. Later on, when fences like Wild adapted with new methods, the law kept up by finding additional means to reach fencing operations.

With Tornado Cash, we are at a "Jonathan Wild" stage of the modern money laundering profession's development. Control of dirty proceeds is being shifted to autonomous intermediaries so that the perpetrators can avoid prosecution. Much like how the law adapted in the 1700s to encompass Wild's tactics of distancing himself from dirty property, it will have to do the same with money launderers who use crypto code, autonomous robots, or AI drones to dissociate themselves. While I don't enjoy the idea of anyone spending time in jail, finding Pertsev guilty is part of that process.

Unlike Jonathan Wild, who was a criminal mastermind, Alexey Pertsev and colleagues seem to have bungled into the crime partly out of an ideological commitment to crypto ethics, the wider community unhelpfully egging him on. That doesn't mean he's not guilty, but it does suggest a lighter sentence than the 64-month one he received might be appropriate.

I've been arguing throughout this article that money laundering law should extend to innovative financial entities created on blockchains, such as Tornado Cash. I want to close by pushing back on this a bit.

A guilty verdict for Pertsev and his colleagues should not be tantamount to a ban the creation of autonomous financial institutions, particularly those focused on privacy. If a coder wants to create an open privacy mechanism for crypto, promote it, and financially profit from it, I think that he or she should have the right to do so, subject to the following condition. The code needs to include a component that screens out dirty crypto  and this filter shouldn't be a sham attempt, it has to be a genuine effort.  

While I think the law got it right in this instance, shame on lawmakers and law enforcement if they don't accommodate future generations of code-based entities (and their creators) that actually do make good faith efforts to freeze out dirty money.

25 comments:

  1. The extreme logical conclusion of allowing Tornado Cash developers to go free is indeed that money laundering would cease to be a crime. No argument there. But consider the other extreme. If a developer is responsible in perpetuity for how their code is used, no one will write code anymore. Should the developers of BitTorrent or CD burning software be prosecuted for copyright violation? Should the developers of password cracking software (which is completely necessary for security researchers) be prosecuted for every hack where it's used? Should developers of encryption software be prosecuted for ransomware attacks? Certainly that seems absurd too, and yet that's the precedent being created here.
    The developers knowing that their tool was also being used for illegal purposes is no excuse here. On all the previous examples it is common knowledge that those tools are also used by criminals. And that's not exclusive to code. Cars, phones, knifes, guns, etc. All are used for illegal purposes, and yet we don't jail the manufacturers of such items nor do we require that they be able to stop such usage of their products.
    That's the real problem that the crypto community has with the Pertsev decision. That the developers of financial privacy software are being held to an impossible standard.
    Which is not even being applied equally. What's the difference between Monero and Tornado Cash? Shouldn't the Monero devs be jailed too?
    There's really only two alternatives here, either money laundering functionally stops being a crime, or a lot of software starts coming with spyware and remote off switchs (since that's the only way to police what your users do).

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    1. Hi Bruno,

      I address you comments briefly at the end of my piece, but let me add some more thoughts.

      You say that cars, CD burning software, and phones are all used for illegal purposes, yet we don't jail the manufacturers of such items. That's true, but the reason for that is because the law treats these products differently from financial products.

      What Pertsev created isn't mere code. He helped build an automated financial institution that provides the public with a financial service, and so the money laundering laws apply. If Pertsev had coded a different sort of product, say an on-chain CD burner or an immutable Ethereum-based social media network, then he wouldn't have been liable for money laundering. The legal status of financial products is unique among all products; code writers like Pertsev need to be aware of this.

      The implications of this are not that no one will write code anymore, as you suggest. If they prefer, coders can write non-financial code that doesn't fall under the ambit of the laundering statutes. Or they can write code that creates a financial product that is capable of screening out money launderers. It's a challenge, but I think crypto code writers can rise to it.

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    2. "the law treats these products differently from financial products."
      Is there a particular legal precedent for this? BSA, maybe?

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    3. Apart from the elementary mistake in your analysis (Persev isn't alleged to have laundered money, but to have conspired to launder money, the actual launderers being Russia, North Korea, ...), you're also missing a broader problem, in that data is just data and ever since bitcoin came into existence, there is no clear distinction between financial and non-financial data.

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    4. Anon: "Is there a particular legal precedent for this? BSA, maybe?"

      The BSA is one example. In the U.S., the money laundering statutes (18 USC 1956 and 1957) are other examples. More generally, the law has been treating money differently from other products for a long time. (I wrote about one very old distinction here.)

      Peter: Your point about it being a conspiracy money laundering charge rather than a straight money laundering charge is irrelevant.

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    5. JP: My argument was more that the law was not consistent in treating code in different ways and so should be changed. In my opinion, we already had a similar case regarding the export of cryptography and the Bernstein v. United States case.
      But for the sake of this discussion, I'll accept your argument at face value and just say that the law can treat financial code differently from non-financial code. Fair enough.
      I then ask you a question. If Pertsev had never deployed the code to the blockchain, but had only wrote code and posted it on Github, should he held liable? Assume that he would continue developing and posting code online even after someone else deployed and used the code.

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    6. I forgot to sign the last reply. I'm still Bruno.

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    7. By the way, I do absolutely understand that your motivations are good in wanting to stop money laundering. I myself am very much cypherpunk so I have a strong bias against AML laws, but I can see your argument towards wanting to give some power to law enforcement to stop money laundering while giving privacy to honest citizens.
      I do think though that you are underestimating the difficulty of separating between financial and non-financial code though. Tornado Cash is not a terribly complex piece of code, and in fact the overall design is used in other applications. For example, a private messaging system (where messages are not traceable to the sender or receiver) would need to use basically the same setup. It's entirely possible that someone creates code to anonymize data in some way, and then criminals realize that they can use it to launder money.

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    8. That they were charged with conspiracy indicates that the prosecutors don't think they can succeed with the claim that Pertsev et al were themselves laundering money, rather than merely helping people who laundered money. What it makes irrelevant is your whole narrative. I repeat, unlike you, the prosecutors and the judge aren't claiming that Pertsev et al laundered money.

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    9. Bruno: "If Pertsev had never deployed the code to the blockchain, but had only wrote code and posted it on Github, should he held liable? Assume that he would continue developing and posting code online even after someone else deployed and used the code."

      That makes the issue much more complicated. I suppose at that point a money laundering charge would probably fall on whoever deployed the code and knowingly disguised criminal funds, and not on Pertsev. I'm assuming in your scenario that Pertsev didn't work with the person who deployed it in any fashion, say by collecting royalty payments.

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    10. Peter, you keep repeating the irrelevant point about conspiracy in this thread and the one below, so I'll explain. First, I don't see any evidence that the Dutch prosecutor brought a conspiracy money laundering charge rather than a regular money laundering charge, not that it matters.

      Second, it's true that the U.S. prosecutors have charged Storm and Semenov with conspiracy to launder money, but even so you've muddled up what this amounts to. The conspiracy charge doesn't allege that Storm and Semenov conspired with the original criminals to launder money, as you suggest. It means that Storm and Semenov conspired with each other, with Pertsev, and with the relayers, to launder funds. There's no obligation to show that they conspired with the hackers. I suggest you head back to the drawing board on this.

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    11. "That makes the issue much more complicated."
      Now it's getting interesting, right? That opens up a situation similar to what you described in your post, where money laundering is effectively made legal because it becomes unenforceable. If researchers and engineers can openly develop and code these types of ML contracts as long as they don't receive payments (although conceivably they could receive grants or donations like any research project), then there will be people willing to deploy them to the blockchain anonymously (it's quite trivial to do) and then anyone can use the contracts.
      This is the trend that you can see in past financial privacy systems, to separate more and more the person who designs the system from the people using it, until it either becomes de facto legal to design those systems or the law is forced to take draconian measures to stop it.
      Not deploying ML code is not even the last option. If publishing ML code becomes illegal, people will try to publish pseudo-code (either in natural or mathematical language). If that doesn't work, they will publish code that is not meant to do ML but can do so indirectly (like the private messaging system I described earlier).
      Sometimes there are technological advances that make a law impossible to enforce. This has happened before with encryption control (just google Clipper chip) and copyright piracy (anyone can just download movies/music/books for free illegally). In some sense is already happening with crypto currency self-custody (which thwarts the right of the state to confiscate bank accounts) and I don't see how it won't happen with financial privacy and money laundering.

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    12. "...then there will be people willing to deploy them to the blockchain anonymously (it's quite trivial to do) and then anyone can use the contracts."

      Law enforcement will have to work hard to uncover the anonymous deployers. But let's say that it proves impossible to enforce money laundering laws against deployers. Maybe they've disappeared, they don't make a profit from it, and they don't add to it. Even so, that doesn't mean that money laundering has been de facto legalized.

      The next target for money laundering charges is the users, the ones who provide liquidity to criminal funds. So if Vitalik Buterin deposits ETH to a future Tornado Cash, he effectively contributes to the anonymity set of all other users, including criminals, which means he can be charged for helping to disguise criminal funds.

      This is ultimately what money laundering looks like if future Tornados are truly tools with no intermediary, like a gun or a car. Liability for crime falls entirely onto the end user.

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  2. great post, as always ... so, if Pertsev had just written the code and not run the website or been involved in the relayers, you'd still have found him liable?

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    1. That's a tough question.

      Say that Pertsev and colleagues had just written the original code for the pools and then walked away in 2019. Guilty or not?

      One complication is that without all the extras added by Pertsev in 2020 and 2021 (including the relayer network and a tokenomics scheme that allowed for liquidity mining), Tornado Cash may never have attracted enough liquidity to be used by criminals, and we wouldn't even be talking about it to this day because no dirty money got laundered. Tornado Cash succeeded to a certain degree because of Pertsev's ongoing intervention and participation.

      But I'm dodging the question. If the trio did walk away in 2019, and Tornado somehow did take off in 2021, it'd be very difficult for me accept the argument that Pertsev participated "knowingly," which is a key requirement for a money laundering verdict.

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  3. Your analogies are misleading, because in all of them, the person accused of being a money launderer both controls (i.e. is the proximally closest person to the decisions) and owns the equipment. You're just arbitrarily labeling said equipment as "autonomous" because it contains mechanical components (i.e. there is a certain level of determinism in the behaviour of the infrastructure). Delegating activities to third parties is also not a appropriate analogy because you're still issuing commands to said parties.

    In the cases of decentralised mixers, the proximally closest person is not the person being accused, rather, it's the end user. Nor do they own the equipment. A better analogy would thus be if Marty Byrde was selling software that end-users install onto their own drones. Would that also be money laundering?

    If you drop the requirements of control and ownership, the same logic can be used to claim that almost anyone is a money launderer, as long as there is some causal link, no matter how far removed, between some benefit they enjoy, and some crime. Any business would be obligated to spy on their business partners. Indeed, you would be a money launderer too, because you write about money laundering in your professional capacity, so you also benefit from Pertsev's actions.

    Furthermore, if you look at the legal documents, they haven't been charged with money laundering, but with "conspiracy to commit money laundering". In the translation from Dutch, the document says "co-perpetration and making a habit of committing money laundering", I'm not sure which one of the two it's equivalent to, but I suspect it's the analogue of "conspiracy". This is, in my opinion, logically more defensible, and I would argue it proves mine, not your, position.

    That the lawsuits alleged "conspiracy" rather than "money laundering" per se, could actually be seen as relevant for other reasons, because future privacy solutions can reduce the likelihood of lawsuits if they avoid the "conspiracy" aspect. If the prosecution can't prove a "conspiracy", then due to the reasons outlined above they would have an even harder time proving "money laundering".

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    1. "In the cases of decentralised mixers, the proximally closest person is not the person being accused, rather, it's the end user. Nor do they own the equipment."

      What decentralized mixer are we talking about, here?

      Pertsev and his colleagues owned a controlling stake in the tokens that governed parts of the Tornado system, such as the website. They used this control to continually pass decisions concerning new design elements, and then themselves built those elements, even after it was well-known that criminals regularly used Tornado. They profited on an ongoing basis from the additions they made to Tornado, such as the relayer system.

      Is this what any rational person would call decentralized?

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    2. Ah, so now you're switching your argument. You're simultaneously claiming that mere contributions to mixing infrastructure are, and aren't, sufficient to conclude money laundering.

      Your latter position makes more sense, and I tend to agree that these OTHER activities, rather than the mixer itself, were what determined the judges opinion. I originally thought that they were charged / sentenced with money laundering, rather than conspiracy. It is a huge leap of logic to claim that these other activities you mention are money laundering, however it is way more persuasive to argue they are an evidence of conspiracy.

      I don't think either of us disputes that the end-users of Tornado Cash were laundering money (according to current laws). You seem to claim that Pertsev et al were also laundering money (indeed this has been the main point of our disagreement for a couple of weeks). However, after looking at the actual charges, "conspiracy", even the prosecutors and the judge don't argue that Pertsev et al were laundering money, rather that they conspired with money launderers. So your whole line of reasoning doesn't make any more sense.

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    3. "Your latter position makes more sense, and I tend to agree that these OTHER activities, rather than the mixer itself, were what determined the judges opinion."

      No, the Dutch court's opinion is that Pertsev is guilty for the creation of the actual immutable pools, and that he should have foreseen what would happen, and that his decision not to dissociate himself (as demonstrated by his continued additions to the tool, say by upgrading the front end) underline his motive to engage in money laundering.

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  4. Your analysis if very good, and applies equally well to the violation of anti-discrimination laws, copyright laws and anti-trust laws by "big data" and generally by AI that scrapes on-line information. A corporation that violates those laws should have no defense in saying that the internal workings of a multi-level neural network are impenetrable. Similarly, a social platform that selects a libelous bit of "news" to deliver automatically, should have no defense in section 230.

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    1. Thanks, Rick.

      My schtick is money and money laundering, so I'm a bit hesitant to trespass on other subject areas such as copyright where the facts and circumstances may be different. But on first pass I think I agree with you about the equal applicability of the analysis.

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  5. "What's the difference between Monero and Tornado Cash? Shouldn't the Monero devs be jailed too?"

    I adhere to Bruno's question. What is the difference? Could Monero developers anticipate that their creation was going to be used for money laundering? Should we consider that Monero users know that is used for money laundering and therefore they are accomplices because they contribute to the anonimity set?

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    1. Yeah, that's a good question, one I've also wondered about. Look, I don't know the answer.

      On the one hand, an application of the Dutch court's decision to Monero does seem to suggest that those involved in creating and developing it be charged with money laundering, because they should have foreseen XMR being used by crooks.

      On the other hand, there may be a distinction to be made between a chain that has native privacy (ie Zcash and Monero) and a tool like Tornado, which takes an object for which we all know its origins and obfuscates it.

      One of the triggers for a money laundering charge is to disguise, hide, or conceal the source of something. That's clearly what Tornado did. But when a private-by-default chain processes a transfer, does it actually "disguise" anything, given that we never knew the source, anyways? Perhaps not.

      That's not to say that that criminal money laundering isn't occurring with XMR. It could be argued that the disguising, and therefore the money laundering, occurs at the gateways to Monero (rather than on Monero proper), when a person or exchange knowingly accepts criminal funds -- say cash or bitcoin -- in return for XMR.

      But I'm just speculating.

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    2. I think it is an extremely high burden for plain honest users to ensure that the bearer asset they receive in a p2p exchange, like a Bitcoin coinjoin, is not "dirty". It is not an easy task.

      Blacklists are tricky, criminals can make several transaction hops to themselves to obfuscate the original blacklisted address, so every user would need to use compliance software to do that job for them. We could get to the point that using plain bitcoin core could be dangerous or even illegal if the use of wallets without a compliance tool is banned.

      Also, criminals could turn around the utility of blacklists, polluting honest addresses with dirty funds. They could even target specific persons if they know their BTC address, and the receiver cannot avoid receiving those BTCs and getting them in serious legal trouble.

      Furthermore, blacklists could be used for personal, economic or political interests beyond law enforcement. I know in many cases crime is clear, but anyways, is it reasonable to add an address into a blacklist without a proper legal due process? What if the "bad guys" publish their blacklists? Who are "good guys" and who are the "bad guys"? Are the OFAC the good guys"?

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