- On the eve of Pertsev's trial in the Netherlands, prosecutors and privacy advocates square off.
- If found guilty, the verdict would send a ‘dangerous signal’ to open source developers.
- The indictment says that writing code is not a crime, but promoting a platform used by criminals is.
On Tuesday, the software developer of the embattled crypto mixer Tornado Cash will stand trial on a money laundering charge in the Netherlands.
But Alexey Pertsev won’t be the sole defendant facing judgement — all of crypto, in a sense, will also be on the line as a Dutch court determines where software development ends and criminality begins.
The outcome of the trial, which is expected to run its course over just two days, may shape the evolution of decentralised finance for some time to come.
What a guilty verdict would mean
Pertsev, 30, a Russian national living in an Amsterdam suburb, is accused of being a co-perpetrator in organised crime to launder over $1.2 billion of dirty money from hacks on DeFi protocols through Tornado Cash between 2019 and 2022.
The crypto mixer was allegedly exploited by criminal groups, among them North Korea’s cybercrime organisation Lazarus, according to the US Treasury Department, which sanctioned the protocol in 2022.
If Pertsev is convicted by a three-judge panel the verdict could spur authorities worldwide to crack down on developers of privacy-enhancing technology enabled by blockchain systems, say industry experts.
That decision would send a “dangerous signal” to not only developers of privacy-enhancing tools, but also of related platforms or interfaces that make the tools easier to use, said Aaron Mackey, senior staff attorney at the Electronic Frontier Foundation, a non-profit digital rights group based in San Francisco.
“We’re going to see a lot of potential chilling effects not only just in people being afraid of doing it, but you’re also going to see a discouragement of investment in those opportunities,” Mackey told DL News.
If Pertsev is acquitted, the developer community can breathe a collective sigh of relief.
It may mean that legal authorities, at least in Europe, are carving out a safe harbour for devs who work on privacy tools for blockchain-based projects, even those later found to be used by criminals.
That’s why crypto privacy advocates are rallying to his cause.
For example, conference and community organisers in Amsterdam called Crypto Canal asked the 36 protocols listed in the indictment to state that they don’t hold Tornado Cash developers responsible for the funds laundered. Some responded on X.
Mixing criminal assets and concealing the origin of criminal funds is punishable.
— Dutch prosecutors
The outcome of the trial could also have ripple effects on the trial of Roman Storm, another Tornado Cash developer set to sit trial in September in the US.
There have been several attempts to raise funds to cover the costs of Persev’s and Storm’s legal spendings.
Experts estimate that Pertsev may face an eight-year prison sentence if found guilty at the trial, which will take place in ‘s-Hertogenbosch, a city about an hour’s drive south of Amsterdam.
The verdict could take another six weeks to come in after the trial concludes.
The prosecutor’s case
Prosecutors laid out their strategy in a three-page indictment obtained by DL News last week.
The defendant “made a habit of committing money laundering,” they said in the papers. “Mixing criminal assets and concealing the origin of criminal funds is punishable,” the public prosecutors wrote.
‘They will have to prove that he knew or must have known about the criminal background of the transactions in the indictment.’
— Judith de Boer, Hertoghs Advocaten
The indictment said Tornado Cash laundered the $1.2 billion in proceeds from hacks and heists in 36 transactions onto its platform. The mixer obfuscated the origins of those transactions.
Prosecutors will have their work cut out for them on such a technically complex case.
“They will have to prove that he knew or must have known about the criminal background of the transactions in the indictment at the moment the transactions came into the mixer,” said Judith de Boer, partner at Dutch law firm Hertoghs Advocaten.
“It’s very specific what knowledge he should have had, given the content of the indictment,” de Boer told DL News.
Over the next two days, prosecutors will need to prove Pertsev’s intentions or “wilful blindness,” said Silke Noa, a privacy and crypto lawyer.
They will also need to show to what extent Pertsev “was or was not in de facto control” of the crypto mixer.
That may be demonstrated by their voting behaviour in the protocol’s governance, or having control over the front-end user interface.
“The prosecution may also argue that Alexey benefited from the hacks through his salary, token allocation and pumping the value of his token allocation through influencing the relayer design,” Noa added.
“However, this does not appear to be strictly necessary to secure a conviction.”
Evidence for perpetration
Pertsev’s lawyer, Keith Cheng, said the indictment was general but failed to specify the exact illegal acts his client allegedly committed.
De Boer echoed Cheng’s reasoning: “The question to me is, what do you need to do once you know that criminals make use of your service? Do you have to shut it down?
“And will prosecutors say, by not shutting down your service that’s enough for co-perpetration? Then the question follows: was he even able to take down the service?”
An arrest
The Netherlands’ financial crime agency, the Fiscal Information and Investigation Service or the FIOD, arrested Pertsev in August 2022, a few days after the US Treasury Department placed sanctions on Tornado Cash.
Pertsev was held in jail for nearly nine months before he was released to house arrest in April 2023. One month later, he was freed but directed to remain in the Netherlands and wear a GPS monitor.
According to prosecutors, the FIOD made charges based on “extensive blockchain analysis, attribution of blockchain data, analysis of IT infrastructures, and in-depth examination of data on seized devices.”
The trial is also bound to get immersed in blockchain ecosystem technicalities, Noa said.
Interlocking pieces
From the outset, the case became a cause célèbre in crypto because the authorities appeared to be prosecuting Pertsev for simply writing code.
Anticipating this argument, Dutch prosecutors have acknowledged that simply writing the software code is not a crime. But the organisational efforts that marketed the service, managed staff, and handled finance is unlawful, they said.
“In the case of Tornado Cash, the suspect and his accomplices controlled all those interlocking pieces knowing their service was being abused by criminals,” prosecutors wrote.
The EFF’s Mackey countered that the authorities may be running roughshod over the line that separates innovation from legerdemain.
“What it sounds like is the prosecutor is okay with someone developing this in obscurity, but the moment that it’s used to protect people more broadly and is marketed to them as a tool that they can use to protect their privacy and anonymity,” Mackey said. “That’s the problem.”
‘These types of trials have much more everlasting consequences for ongoing development of cryptocurrencies.’
— Aaron Mackey, Electronic Frontier Foundation
The protection of privacy is one of the building blocks of the culture within many blockchain communities. Tools like crypto mixers have a legitimate value in the crypto proposition.
“The typical use case of a crypto mixer is someone who wants to use a decentralised cryptocurrency but doesn’t want every single transaction that they’ve ever made available and traceable on a blockchain,” Mackey said.
A case for privacy
There are a number of beneficial applications, supporters say.
Obfuscating a crypto transaction history through a mixer like Tornado Cash can help a human rights activist under surveillance, for example. Or it can aid in domestic abuse scenarios, or allow someone to support an unpopular organisation they don’t want to be publicly associated with.
While the trial of Sam Bankman Fried, the convicted co-founder of the failed exchange FTX, last year made headlines around the world, it’s this case that may have far deeper impact on the industry.
“These types of trials have much more everlasting consequences for ongoing development of not just sort of cryptocurrencies and decentralised networks and their many applications, but also for privacy enhancing technologies that are built to work on top to supplement some of these decentralised networks,” Mackey said.
Inbar Preiss is DL News’ Brussels correspondent. Contact the author at inbar@dlnews.com.