I understand why they arrested him but it doesn't seem like he did anything thats illegal so it will be interesting to see what charge they bring or how they intend to differentiate between tornado cash and HSBC laundering money for cartels.
It might not have been possible change the existing deployed contracts, or to shut the service down entirely (I’m not actually sure what governance features if any the core contracts have), but there are things that could have been done nevertheless, like shutting down the website that provided a convenient front end.
Basically, unless he can show that he genuinely did not know that the service was laundering illegal funds on a large scale, or that he did everything in his power to stop this use, he is probably screwed. This is especially true if he profits in any way from the operation of TC, like if he was operating any relay nodes that took a fee for funding anonymous withdrawals.
Do you think this logic should also apply to encrypted messaging apps? If you're a contributor to Matrix, or another open source FOSS tool, and you hear reports that criminals are using it (because criminals are a subset of the human population), should you be legally required to take all steps to backdoor it?
Remember how Kim DotCom went down for operating MegaUpload while actively knowing that one of the bigger usages of the site was piracy, and not doing enough to discourage or prevent such use? The concept here is not all that different.
This is why I would never contribute to some open source projects like metasploit that come too close to falling on the wrong side of the line.