How Berman Amendments Could Save Roman Storm: Uneasy Money

Transcript

So, uh, acquitt or delay, um, the, uh, the retrial of, um, Roman Storm on sanctions violations and money laundering charges, um, has been rescheduled to April 2027 from October, um, uh, because the judge is now considering uh, his motion for a quiddle. So, yeah. What's what's the latest on this one? Um, >> Peter, you want to take it? Give us the lowdown.

>> Yeah, what's the what's what's the there there's not a lot other than it's sort of like a hurry up and wait situation. And this trial's going on for a long time. We're going to have a whole second one in April. Now Roman's waiting for his rule 29 motion, which calls for a mistrial for the whole thing to be ruled on. you still that's still resolved after I think about four months. Um so you know it's difficult because there's really hard legal issues at play here. A lot of people in the space would like to understand better how those legal issues are going to shuffle out, right? I mean it's pretty fundamental this question of whether you're a money transmitter or

not and whether you can have a simple answer for that like can you control customer funds? Yes, you're a money transmitter. if you can't, no, you're not. Or is the answer going to be much more complex, something along the lines of what the um Southern District of New York has argued um in Roman's case and and he was found ultimately um guilty of a jury on that on that count, which is something like uh I think they argued that a frying pan doesn't hold the heat, but it transmits the heat. What does that mean? How do I know if based on that kind of legal reasoning?

Um, for us it's it's a struggle as well on the sanctions count and the money laundering count because again for those who haven't followed this closely. During the first trial, the jury just couldn't reach a deliberation on either of those counts, which doesn't mean he's innocent, doesn't mean he's guilty. Um, it means it's a mistrial. Um those counts are difficult as well as the money transmitting count um for sanctions evasion conspiracy to evade sanctions. You know there's no clearly presented evidence that Roman as a software developer and someone who was involved with say paying for servers and things like that to run the system um

but didn't have control over funds. There's no evidence that he ever made a transaction with a sanctioned party, right? which would be the typical way that you'd end up on the wrong side of sanctions. >> Yeah, >> you have to have a very complex sort of I think over broad interpretation of conspiracy to commit sanctions to think that by building these tools and knowing that others would use them to evade sanctions, he's ultimately actually a part knowingly. >> Yeah. Yeah. Yeah. Yeah. >> And the other thing that we talk about a lot at Coin Center that I don't hear a lot of people talking about is that our sanctions laws actually have a pretty clear carveout. It says that the president in his sanctions powers doesn't have the authority to sanction transactions in information that carve

out the statutory. It's called the Burman amendments because it came from uh Congressman Burman who thought that the sanctions laws were good and important but that we shouldn't use them as a blunt instrument to restrict free speech. So he wanted a statutory protection for speech as well as a uh constitutional protection >> and transactions and information, you know, back when that stuff was was was new in the sanctions laws was about like Cuban art dealers in Miami who were selling paintings in violation of our embargo of Cuba. And and you think, well, that doesn't really apply here.

But actually, you know, the courts have repeatedly slapped the administration down for treating that information exemption too narrowly by saying that even like rebroadcasting a soccer game and making a ton of money off of it or publishing a novel written by the Ayatollah. There isn't actually a case like that, but there's a similar case. Publishing a novel by by an Iranian official and making a bunch of money off it in the US would not be a sanctionable offense. And so >> there's not a direct analogy here again because Roman didn't actually make any transaction with a sanctioned person, >> but to the extent he transacted in anything, it was publishing software and uh information on the blockchain, right?

That that's what the smart contracts did. And that's all information. And I'm not saying that in the sort of naive way like, oh, you can't regulate Bitcoin because a Bitcoin transaction is just information. I mean it in a real way like you you can't regulate the guy who wrote software that other people use to move Ethereum because that is information even if the Ethereum movements are transactions >> is money right yeah like the the thing with moving money it's just a question of like was he >> holding a sack you know carrying it to Iran no right like nor was he even courting you know like if you if you had uh you know and and they do right like they've got like a bunch of uh you uh kind of logs of transactions and and

conversations and stuff like you know it wasn't like they were out there being like wouldn't this be great if Iran started using it and you know we make a bunch of money >> nothing >> some some centralized players that you know we know about right who like how do we get more Iranian dollars through this thing >> to to draw a compromise I mean you can look at the um Samurai wallet developers >> and and that is also a hard case I don't want to suggest that wasn't a hard case because there people or are running a coin join um server that matches people who want to mix their Bitcoin transactions.

>> Uh that's not custodial. It is maybe closer to the metal of like connecting people to make transactions. Um but of course the really bad fact in that case were tweets about we welcome our new Russian oligarch users, right? >> Yeah. >> This funny but not it >> guys. I had to I I literally had to go on Twitter yesterday and call someone out for in response to the Iran news. Someone tweeted something about another favorite service of money launderers everywhere and basically was like, "Hey, new business use case." Yeah. Trying to pump that protocol coin thing.

>> Like, come on, man. >> I am begging you. I am begging you guys. But but yeah, >> stop creating content for the [ __ ] US government. I am begging you. Like just don't say it, okay? >> And and in Roman's case, there isn't even such like >> Yeah. >> either bad jokes or or or actual inducement or actual >> just no there's nothing. So >> yeah. >> Yeah. I don't know, Peter. I want to ask >> Yeah. >> Why won't they just let this one go? Like they've spent so much energy on this. They've spent so much money on this. They got the mistrial.

>> Like >> they got the guilty verdict on money transmission, too, right? You know. >> Yeah. >> Um, >> you know, I I I wish I was better at psychoanalyzing folks. And I'm not going to do it. I I I'll say the things that people that a lot of people already know and you might have heard, but you know that the Department of Justice is is >> is siloed. Different offices, different offices of prosecutors have different perspectives on things and that can be bad and that can be good. I mean we we we would not want like tight unified executive control over the entire department of justice because the department of

justice is supposed to police and investigate the executive you know so having some decentralization here is good but at the same time >> you say we um the executive's life >> might be to differ that's that's the royal we of the peasantry right >> who who blame them. Um, but the Southern District of New York has this reputation for being the global financial cop on the block. It goes all the way back to when finance really meant every dollar that goes across international trade and borders goes through Wall Street at some point. So, it's a great place to interdict and stop transnational crime.

>> And so, that's the SDNY's that's the chip on their shoulder. And they've got some good reason to have that chip on their shoulder. and they see something like Tornado Cache being this tool that's dealing with large quantities of illicit funds from a hacking organization that's probably in North Korea and money that might end up financing nuclear weapons. You think that's my bread and butter? I'm going to go get that. And I I feel for them up until the point that they encounter what is this thing? How does it work? Will our prosecuting a developer who built it actually stop that bad criminal, you know, financing? And if the answer is no, because it's an immutable smart contract that if you throw Roman in jail for 30 years is still running, then what are you doing? Do something else, you

know? I don't know. >> Yeah. No, that's my that's always been my since day one. So the news broke on the sanctions and then then when the news broke that he he had been arrested, it my question has always just been why? Because it actually and now we know, right? The the volumes were impacted by the sanctions. um they were not actually really impacted by the arrests and the prosecution of Roman. Um but also they weren't that impacted.

>> No, >> DPRK's use of tornado cash uh let's call it it is not really they've never really used it as an actual off-use scooter. uh they've used it as a just another thing to do because when you launder money you have to do things otherwise it's not laundering like >> all kinds of tools in your tool bag but like losing this one if it was even possible to take this one away and I'd argue it's actually not >> isn't fair enough change the battles and kind of like move the front lines one way or the other >> and um you know this kind of goes to what we were saying before the break about pragmatism like to me I think this is a misallocation of scarce government

resources that could be much better spent going after actual human u moneyaundering networks um >> or things that have a direct impact on North Korea right like we've seen actions or frankly any actor right when we talk about incentives I think there is value in in if someone hacks something if some someone steals the money there there is value in immediately whacking that that down and saying No, no, you don't get the money, right? Because it actually changes the incentives very quickly. Um, and when you create risk for the threat actors, right, you create risk of say arrest or social ostracization or sanctions or whatever, right? When you do those

things, that also changes the incentives. None of these things are bad. They're actually quite good. But again, when we talk about tornado cash specifically, did that do that? Right? If the goal is to have North Korea not uh like not not double up their efforts to hack people, right, and double up the amount of money that they're stealing, double up their nuclear program, what's the most effective action? And you know, there's a lot of answers, but like one little service that they've been using has has never been that answer, >> right? especially when taking down that service doesn't actually result in more funds being taken from them or getting to them.

>> And and and you're right, Tay. And and the other thing I'd add is little service as far as stopping it. And if you could stop it, what its impact on elicit finance would be small. On the other end of the ledger for me, Fornado was the first proof of concept of zero knowledge cryptography that saw like truly large volumes. Zcash of course and I've been involved with the Zcash um project on and off in an informal capacity. I was at the foundation for a little while was the first like scientific test of this stuff like can we use zero knowledge proofs to actually have a verifiable blockchain without revealing everybody's transactions to everybody which if you

>> if you believe in this technological aroron is probably what everybody wants you know like we're not going to want to do global finance on a fully public ledger for all eternity and you know Roman and his uh co-developers were sort of bold enough to say like, "Oh, that Zcash stuff is cool, but it's kind of isolated in the Zcash island right now. Let's see if it works on Ethereum. Let's like run it live and battle test it." And they did it at great personal risk for themselves. And so to me it's it's doubly offensive that you know the small anti-moneylaundering benefit you think you might get or anti-sanctions or sanctions evasion benefit you might get by prosecuting this guy actually just villainizing this guy that created a

great technology or battle tested a great technology and I I think should be treated as as more of a hero than a villain frankly because we need to we need to have bold people who try these technologies in novel novel places like the Ethereum blockchain And once we stop doing that, we're going to stop innovative in innovating and stop building the systems that we actually want. >> I mean, the the chilling effect like the reason why this feels so weird the longer it goes, right? And like, you know, in April of next year, I think it will feel even stranger as you know, more clarity or whatever is is you know, put put to bear. at the time that this was announced in in you know the that era of crypto it was unsurprising to

anyone. I I feel like you know people people were like of course this is the escala you know there was this escalation of just like going after everything and it's like oh now they're going after like people actually writing the software like they genuinely are trying to you know uh have this chilling effect to shut everything down right >> now in the cold light of day you look at it you know two years later and you're like that was crazy like it it did it was like of course this is happening it doesn't feel fair but >> and and people back then didn't even know all the facts I'll be the first to admit that I didn't you didn't know all the all the facts. I was at um a Zcash conference in Las Vegas when the when the arrest was when the sanctions were

first announced, not not Roman's arrest, although Alexi was arrested in the Netherlands the next day. And I didn't know enough about tornado cash. I had to like rush to find uh a guy Michael Llewell and he's developer at Open Zeppelin at the time, uh smart contract security expert, and be like, can you help me look at the actual tornado capsule contracts and like are they immutable? are they or is this just like some some other crappy money like Tumblr? >> And and so at the time I understand like the the prosecutors probably didn't have good information as to what they were.

>> Um >> they definitely could. >> In fact, we know that later because they ended up citing our own explainers for how tornado cash works before they realized that we were going to be some of the people suing the government to validate the sanctions. >> Yeah. And you'd think, well, now that we've learned so much, why are you going to double down here? The facts just keep to me getting clearer and more obviously worse for the prosecution that this old address was built in a very robust way to be immutable, to be just a privacy tool for anybody to use, not something that you'd have to like call up Roman and be like, "Hey, Roman, I'd like to move some money from Iran." Like, that's obviously not how it works.

>> Exactly. >> And that's not a secret now. So why? Yeah. Why? Yeah. You know, it's interesting cuz cuz uh when um like I I'm I met uh all of the guys uh like pre tornado cash, right? Like before it was even launched. Um and and uh you know, they weren't they were like maybe looking to raise, but they weren't really sure what to do. But um you know, there were these like super cracked guys that had like solved this thing, had like figured out how to do it. Um, and you know, there was the the only vibe you got from them was that like they were just like in love with the technology, right? Yeah.

>> Um, and you know, I remember >> that's the most dangerous vibe though. >> I know. I know. >> I know. But but they were not >> but they were not unaware of uh of like the risks of this, right? Like everyone in crypto knew, you know, you couldn't be in crypto and not know that like, you know, uh something that was going to obiscate, you know, uh uh >> Yeah. True. >> So, because I I mean I've known them for I've known them all forever and I also remember like Vitalic and like Amin and stuff talking about this way before Tornado Cash launched. I would say like they didn't they like there was like a vague awareness of the risk >> but even that is not the same as like

what we know now and today >> the 2018 2019 conversations >> from a regulatory standpoint at that point Fininsson had just come out with its clearest guidance yet saying that an anonymizing software provider is not a money transmitter it's like Jesus and >> that's why big white shoe law firms like Cravath have written on the tornado cash prosecution, at least the money transmission charge, and been like, "This is insane. The regulator at the time says it wasn't money transmission. Who were they supposed to license with?" >> Yeah.

>> Yeah. And I think it was just we just I mean, part of it was was being naive on on just the depths of say like the hacks and what was to come, right? Um, but I think also there was just a lot of I think the whole world didn't know what was going to come, right? Like the hacks and the moneyaundering that happened like that happened on Bitcoin. Like no one came to Ethereum. Ethereum was just like this ICO land. >> Yeah, exactly. >> You know, like every once in a while >> it wasn't on the radar.

>> Um, I'm trying to think like the big Ethereum hacks like Well, it would be like the centralized exchanges would get hacked or like every once in a while like an ICO wallet would get hacked. Some of those we now know were North Korea, but at the time we actually didn't know. >> No. >> Right. There was there was huge swads of activity that we did not know until much later like who was behind it and sort of >> Yeah. how these how the like the networks worked. I think that's one thing I try to remind developers today is like it's you're you have to be aware of what you're building. Not because you're scared of the government, but because like if you want to build something valuable for this world, like let's let's be real about what the risks are,

>> then it'll change. It'll it'll change as you build it. You'll get users you didn't know you were going to have. You'll have vulnerabilities and other things you didn't know. >> Yeah. And so I don't I don't tell people not to build things, but I certainly tell them that when they're building things there, like and I still, by the way, the number one risk is you getting hacked whenever you're building something, >> right? It's your protocol being hacked. That is the number one risk. >> You're the target. Yeah. Yeah. >> Um but you know, there's there's a million other things. And if you have uh I think today is just a lot different, too. like tornado cash just it's so hard to reason about because it is actually immutable.

>> It is actually like >> it's one of the few most people do not choose to build like that today and therefore the conversation is completely different. Um but yeah it's >> but that was the brilliance of it is that like you know you would have said you would have said this would not be possible to do it in an immutable way right like it's too complex I would have said that right like it's too complex you're going to need to have some you know uh ability to to constrain things and they they found a way to solve that problem and and it was the same thing with the token design right like you know um I said to them >> and by the way they're one of the few that actually did an immutable and actually didn't get hacked.

>> Yeah. >> Like there's only three there's only three things that have like successfully >> well there's probably only like three things that have are im mutable have not been hacked and like actually got a lot of usage. >> A lot of usage. Yeah, exactly. >> It most of the times they you know Yeah. Most of the times it's well yeah I mean things are still being hacked so that never could go down but yeah I just I hate I hate this case. I hate I hate what's happened to Roman and all the guys and I don't know I wish there was a a better path forward. That's all.

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