Dutch financial crime authorities have arrested a man suspected of helping to develop Tornado Cash, the crypto mixing service placed under sanctions by the US for alleged money laundering.
The arrest by the Fiscal Information and Investigation Service (FIOD) was announced on Friday, but the agency said it took place on Wednesday in Amsterdam. The 29-year-old was suspected of involvement in concealing criminal financial flows and facilitating money laundering through Tornado, it said.
FIOD’s move comes just days after the US Treasury imposed sanctions on the crypto mixing service, raising the stakes in its efforts to crack down on crypto tools that can be used to evade sanctions or commit broader financial crimes.
Earlier this week, the US Treasury said Tornado Cash was used to launder more than $7bn worth of illicit funds, including $455mn stolen by Lazarus Group, a state-sponsored North Korean cyber criminal group.
Regulators are focusing on the role of so-called mixing services in crypto markets because they break the payment trails that would typically be accessible through the digital ledgers that underlie cryptocurrencies. Tornado is designed to be decentralised and run without a traditional corporate structure.
The Dutch agency said it had started a criminal investigation involving Tornado Cash in June. FIOD said its financial advanced cyber team suspected the platform had been used to “conceal large-scale criminal money flows”, including funds stolen by a “group believed to be associated with North Korea”.
The FIOD added that multiple arrests were not being ruled out.
Tornado Cash’s troubles mark a new front in global authorities’ efforts to rein in decentralised and anonymity-enhancing technologies popular in the crypto industry.
In May, the US Treasury sanctioned another crypto mixing service named Blender.io, at the time the first entity of its kind to be placed under sanctions by the Office of Foreign Assets Control. The US government said the crypto mixing service had been used to process $20.5mn in illicit proceeds.
“If you look at this mixing capability . . . all [the government] is doing is inserting itself in the crypto supply chain to say, look, it can be used for good, for privacy, correct, but it can also be used for bad, which is what is alarming”, said Bill Conner, executive chair of SonicWall, a US cyber security group.
However, the crackdown on anonymity-enhancing mixers has angered financial privacy advocates.
“The fact that a technology could be used to violate the law does not mean that there is something wrong with that technology. Criminals have long used cash to commit crimes”, said Marta Belcher, cryptocurrency and civil liberties attorney and special counsel to the Electronic Frontier Foundation.
What does the future hold for digital currencies? Our digital finance news editor Philip Stafford and digital assets correspondent Scott Chipolina had a broad discussion on an Instagram live about this topic, including the impact of regulation and inflation on crypto. Watch it here.