The hacker responsible for stealing over $235 million from the Indian crypto exchange WazirX has transferred around $10 million through sanctioned Tornado Cash in the past 24 hours, according to blockchain security firm Cyvers.

In a Sept. 5 message to CryptoSlate, Cyvers reported that the hacker had begun moving assets the previous day. So far, $10 million in Ethereum (ETH) has been laundered through Tornado Cash, including deposits of about $2 million in ETH.

Cyvers also noted that the hacker moved approximately 5,000 ETH (valued at $12 million) to a new wallet address, “0x2…968.”

Market analysts observed that the WazirX hacker’s laundering tactics resemble those employed by the North Korea-backed Lazarus Group. This group is reportedly behind more than $2 billion in crypto thefts and allegedly funds North Korean government activities.

Lazarus Group often uses Tornado Cash to obscure its transactions as part of a sophisticated laundering process, which sometimes involves chain-hopping.

 WazirX update

These laundering activities come as WazirX announced an early withdrawal window for users to access 66% of their Indian rupee (INR) token balances. Initially set for Sept. 9, the exchange moved the withdrawal date forward, allowing users to access funds sooner.

On Sept. 3, Nischal Shetty, the co-founder of the Indian crypto trading platform, stated:

“Phase 2 of INR withdrawals is live ahead of schedule. We’re working tirelessly to deliver even faster results. Our objective is to be ahead of schedule for all the timelines we share. We will try our level best to make it happen.”

However, some users expressed dissatisfaction with partial access and questioned when crypto withdrawals would resume. WazirX’s legal team has reportedly indicated that users might recover only 55% to 57% of their crypto holdings.

Meanwhile, the exchange has since filed for restructuring in Singapore to address its liabilities.

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Ethereum co-founder Vitalik Buterin donated 30 ETH, approximately $113,000, to support the legal defense of Tornado Cash developers Alexey Pertsev and Roman Storm.

Etherscan data shows that Buterin donated to the “Free Pertsev and Storm” defense fund on the decentralized fundraising platform Juicebox early today, May 30. The fund had raised 591 ETH worth $2.2 million as of press time.

Buterin’s donation is unsurprising, considering he has been a prominent advocate for crypto privacy tools and a consistent user of such platforms.

Tornado Cash developers’ legal trouble

Over the past year, Pertsev and Storm, the Tornado Cash privacy protocol developers, have faced legal troubles for their association with the crypto mixer.

Earlier this month, a Dutch court sentenced Pertsev to 64 months in prison for laundering approximately $1.2 billion through the Tornado Cash crypto mixer between July 2019 and August 2022. However, the developer has reportedly appealed against the judgment at the s-Hertogenbosch Court of Appeal in the Netherlands.

Similarly, Storm has been detained in the US since 2023, and his trial is scheduled for September.

Meanwhile, Buterin’s donation reflects the growing support the developers continue to enjoy within the crypto community. Last month, three blockchain advocacy groups filed amicus curiae briefs to defend Storm against criminal charges in the US, supporting his efforts to dismiss the charges.

Moreover, US lawmakers Senators Cynthia Lummis and Ron Wyden have also challenged the Department of Justice’s (DOJ) attempt to expand the definition of a money-transmitting business to include non-custodial crypto asset software services like Tornado Cash. They argued that such broad definitions would stifle innovation and shake confidence in the DOJ’s respect for the rule of law.

Additionally, several crypto projects are considering proposals to support developers. Discussions about potential donations are ongoing on Optimism, Aave, MakerDAO, YearnFi, Alchemix, and Uniswap forums.

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Tornado Cash developer Alexey Pertsev has reportedly filed an appeal with the Dutch s-Hertogenbosch Court of Appeal following his recent conviction on money laundering charges.

The appeal follows Pertsev’s May 14 sentencing to a 64-month prison term by a Dutch court. The court found him guilty of laundering approximately $1.2 billion through the Tornado Cash crypto mixer between July 2019 and August 2022.

Pertsev’s appeal was filed within the 14-day window mandated by the court for challenging its ruling. However, approval and scheduling for the appeal hearing may entail a considerable period, potentially stretching into months. Pending the commencement of the appeal proceedings, Pertsev remains free on bail.

Pertsev’s conviction had attracted steep criticism from crypto stakeholders who viewed it as an affront to privacy, crypto, and open-source technology. Joel Valenzuela, a business development officer for Dash, said:

“Tornado Cash is a smart contract on Ethereum which provides much-needed privacy to users. After it was deployed, anyone could interact with it, and no one could prevent anyone from using it. Because a certain amount of known hacked or sanctioned funds used the protocol, its founders came under threat.”

Meanwhile, the ramifications of his sentencing could reverberate in the ongoing trials of the protocol’s co-founder in the United States. In August 2023, the Department of Justice (DOJ) indicted Tornado Cash co-founder Roman Storm on money laundering charges and violations of sanction laws.

Tornado Cash is still in use

Despite the protocol founder’s ongoing legal troubles, the crypto community still uses Tornado Cash. The host of the Proof of Decentralization Podcast Chris Blec said:

“Alex Pertsev received a 5 year prison sentence but Tornado Cash is still operating and being used on Ethereum and there’s not much the government can do about that.”

Furthermore, a recent United Nations report also noted that the North Korea-backed Lazarus Group was also using the platform for its illegal activities. According to the report, the hacker group laundered $147.5 million through the crypto mixer in March 2024.

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A Dutch court has sentenced Alexey Pertsev, a developer involved with Tornado Cash, to 64 months in prison.

He was convicted of laundering $1.2 billion in crypto through the Tornado Cash mixer between July 9, 2019, and August 10, 2022.

Pertsev’s legal team has a 14-day window to appeal the court’s decision.

This verdict follows Pertsev’s arrest by Dutch authorities nearly two years ago, in August 2022. At that time, the US government had sanctioned the crypto mixing tool for aiding entities like North Korea-backed Lazarus Group in laundering their illegal proceeds.

The ruling in Pertsev’s case could have significant implications for the crypto sector, particularly as other Tornado Cash developers face trials in the United States. In August 2023, the Department of Justice (DOJ) brought charges against Tornado Cash co-founder Roman Storm, alleging money laundering and violations of US sanctions laws.

Crypto community reacts

Pertsev’s conviction has riled up members of the crypto community, who are criticizing the judgment.

Pablito, the head of security research at Blockfence, said the ruling was a “sad day for privacy, crypto and open-source.” He added that “the war is not over. Privacy is a human right.”

Meanwhile, Alexandre Stachtchenko, a web3 expert, said:

“This has gone too far. It is time to end this KYC and surveillance mess before it eats democracy itself. I will soon publish a text calling for action and support.”

Similarly, Michelle Weekley, the director of product development at Byte Federal, opined that the ruling showed crypto users either “participate in AML/KYC regulation or go to jail.” She added:

“This is the real fight and we either take down the global banking regulation cartel or we just apply all their laws to the new ecosystem and continue to live under their tyrannical dictatorship.”

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Two US lawmakers have opposed the Department of Justice’s (DOJ) attempt to expand the definition of a money-transmitting business.

In a May 9 letter to US Attorney General Merrick Garland, Senators Cynthia Lummis and Ron Wyden argued that the DOJ’s broad interpretation could criminalize non-custodial crypto asset software services.

According to the lawmakers:

“The DOJ’s unprecedented interpretation of this statute in the context of non-custodial crypto asset software services contradicts the clear intent of Congress and the authoritative guidance of the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).”

DOJ’s argument

In April, the DOJ argued that the crypto mixer functioned as an unlicensed money transmitter as its rebuttal to Tornado Cash’s developer Roman Storm’s motion for dismissal.

In its motion, the DOJ argued that controlling funds was not a prerequisite for such classification. According to the Justice Department:

“The definition of ‘money transmitting’ in Section 1960 does not require the money transmitter to have ‘control’ of the funds being transferred. The definition exends to ‘transferring funds on behalf of the public by any and all means.”

Congress intent

The lawmakers believe that the DOJ’s position was wrong as Congressional intent for the law requires that a company must have “direct receipt and control of assets” to qualify as a money-transmitting business.

The lawmakers also cited the Bank Secrecy Act and several FinCEN regulations to support their argument against the DOJ’s stance.

The senators also stated :

“Non-custodial crypto service providers cannot be classified as money transmitter businesses because users of such services retain sole possession and control of their crypto assets.”

The lawmakers urged the DOJ not to divert “from the clear, logically sound, and well-established definition of “money transmission” established by FinCEN.” They added:

“Subjecting developers of non-custodial crypto asset software to potential criminal liability as unregistered money transmitters contravenes the well-established interpretation of this provision and will only serve to stifle innovation and shake confidence in the DOJ’s respect for the rule of law.”

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US lawmakers have proposed a new bill that aims to temporarily prevent financial institutions from engaging in transactions involving funds that have been through crypto mixers.

Congressman Sean Casten (IL-06) introduced the bill on May 7 and received support from Representatives Bill Foster, Brad Sherman, and Emmanuel Cleaver.

Blockchain Integrity Act

The proposed legislation, dubbed the Blockchain Integrity Act, seeks to impose a two-year moratorium on financial institutions, such as crypto exchanges, virtual asset service providers (VASPs), and other registered money service businesses (MSBs), from accepting incoming funds routed through a mixer. It also aims to bar outgoing funds from being withdrawn directly to a known mixer address.

During this period, the bill mandates the Treasury Department, SEC, CFTC, and DOJ to conduct a comprehensive study on digital asset mixers, privacy coins, and anonymity-enhancing technologies. This study includes analyzing statistics on their illicit uses, insights into legitimate applications, and crafting tailored legislative suggestions to counter illegal activities by specific perpetrators.

A crypto mixer is a service used to “mix” diverse crypto funds with others to obscure their origin. Typically, this involves pooling source funds from various inputs over an extended random period before redistributing them to destination addresses.

Congressman Casten expressed the opinion that digital asset mixers should be treated as potential tools for money laundering unless subjected to rigorous audits. He claimed that digital assets have been used to finance terrorist activities globally in recent years, adding that:

“A temporary ban while we study this technology will help us better understand how it is used for illicit purposes, prevent future crypto-funded terrorism, and inform future policymaking.”

Similarly, Congressman Foster emphasized that mixers enable malicious actors to perpetrate financial crimes undermining US security. Meanwhile, Congressman Sherman noted mixers aid in achieving crypto’s objective of facilitating concealed transactions.

Notably, this bill emerges amidst heightened scrutiny by US authorities on mixers, alleging that these privacy-enhancing services facilitate illicit financial activities.