On March 12, a federal jury in Washington, D.C., convicted a dual Russian-Swedish national named Roman Sterlingov for his operation of BitcoinBTC Fog, a mixer that was active from 2011-2021. “Roman Sterlingov operated Bitcoin Fog, a cryptocurrency ‘mixing’ service that allowed criminals to launder hundreds of millions of dollars in illicit funds from darknet marketplaces. The defendant and his customers believed they could use Bitcoin Fog to conceal these illicit transactions,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division.
In a press release from the Department of Justice, Deputy Attorney General Lisa Monaco proclaimed, “Our team of agents, analysts, and prosecutors were relentless in their pursuit of justice, painstakingly tracing bitcoin through the blockchain to hold Sterlingov and his Bitcoin Fog enterprise to account.” Sterlingov faces up to 50 years in prison for money laundering and operating a money services business without a license.
The policy question that arises from this in the U.S. garners the idea that all cryptocurrency mixers are basically illegal and that operating such an ‘enterprise’ as Monaco describes Bitcoin Fog puts that person at risk of being similarly charged with money laundering. I had a chance to speak with the Director of Communications at Coin Center, a leading think tank in Washington D.C. on policy issues facing cryptocurrencies.
“The main thing to note is that centralized mixers being shut down and/or sanctioned is not really surprising. That tracks with existing law. It’s the targeting of decentralized tools such as Tornado Cash that exceeds existing sanctions authority, as we argue in our case,” said Neeraj Agrawal, Director of Communications at Coin Center.
The case that Agrawal refers to is a lawsuit filed by Coin Center and other privacy advocates in 2022 against the Office of Foreign Assets Control in the U.S. Department of the Treasury. While the opinion in the case ruled against Coin Center, the organization is seeking an appeal from a U.S. District Court. Tornado Cash operates based on the programming of smart contracts on the EthereumETH blockchain. Essentially, this means there are automated programs that users can access to maintain privacy or access this ‘mixing’ service; however, Tornado Cash has no central operator and is not necessarily an ‘enterprise’ as was Bitcoin Fog. The question that arises from this case is whether regulators will view Tornado Cash, a decentralized crypto mixer, differently from a centralized mixer conducting illicit finance operations such as money laundering and terrorist funding.
In October of 2023, the Financial Crimes Enforcement Unit (FinCEN) proposed treating all “international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern.” This action arose out of the Hamas terrorist attack on Israel and invoked the U.S. Patriot Act to treat CVC mixing as a money laundering concern, meaning financial institutions would need to provide information reporting when these mixers are used.
It does appear that these actions may be having a net chilling effect on the operation of bitcoin mixers in the U.S. Wallet of Satoshi, a bitcoin lightning wallet, announced in November 2023 it was removing its app from U.S. AppleAAPL and Google platforms and would no longer serve U.S. customers going forward. While no specific reason was provided, it seems like these days, operating any kind of cryptocurrency mixer is a risky enterprise.
