DOJ Clarifies Dragonfly Not Under Scrutiny Amid Tornado Cash Trial

The U.S. Department of Justice (DOJ) has clarified that the crypto venture capital firm Dragonfly is not a target of its ongoing investigation, as the federal trial of Tornado Cash co-founder Roman Storm nears its conclusion in Manhattan [1]. Haseeb Qureshi, managing partner of Dragonfly, revealed on social media that federal prosecutor Nathan Rehn confirmed in court on July 28 that the firm and its principals are not under criminal scrutiny. Qureshi called this public clarification “unprecedented” and “a clear violation of DOJ policy,” noting that such information is typically kept confidential [1].

This development follows recent public criticism by Qureshi of the DOJ for targeting Dragonfly for its 2020 investment in Tornado Cash. At the time, the firm had secured an external legal opinion confirming the mixer's compliance with U.S. anti-money laundering guidelines issued by FinCEN [1].

Roman Storm, who co-founded Tornado Cash in 2019, is facing charges related to laundering over $1 billion in cryptocurrency and violating U.S. sanctions against North Korea’s Lazarus Group. The open-source protocol, designed to anonymize cryptocurrency transactions, was placed on the U.S. Treasury’s sanctions list in August 2022—marking the first time a software protocol faced such action [1].

The trial, which began on July 14 in U.S. District Court in Manhattan, has featured testimony from blockchain tracing experts and former Tornado Cash users. Prosecutors argue that Storm personally approved transactions for illicit actors, while defense attorneys contend that the protocol’s code, not its creator, should be the focus of scrutiny [1]. Closing arguments are expected later this week, with the potential for a conviction carrying a maximum prison sentence of 45 years.

The outcome of the trial is seen as pivotal for the future of open-source software and privacy rights in the United States. Critics warn that a conviction could have a chilling effect on innovation in privacy-enhancing tools [1].

[1] DOJ Clarifies Dragonfly Is Not a Target as Tornado Cash Co-Founder Trial Nears Conclusion, https://cryptoslate.com/doj-clarifies-dragonfly-is-not-a-target-as-tornado-cash-co-founder-trial-nears-conclusion/