The US Treasury cites the mixer’s links with global money laundering and cybercrime as reasons for its sanctions.
Yesterday, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash. The government department accused the mixing service of playing a role in laundering assets stolen in major hacks, especially those linked to North Korean hacking groups.
Tornado cash is a decentralized, non-custodial privacy cryptocurrency mixer. Built on Ethereum, it severs the on-chain connection between the recipient and destination addresses, enhancing transaction secrecy. Despite announcing itself as an anonymity tool, the sanctions meted out show that it has become desirable to cyber criminals and hacking groups.
Tornado Cash Linked With North Korean Hacking Group
According to the US Treasury department, Tornado Cash has been used to launder more than $7 billion of digital assets since its creation in 2019. It cites the platform as playing a significant role in laundering cryptocurrencies stolen from major hacks, including those linked with North Korean hackers.
The sum laundered includes $455 million taken in the most significant known virtual currency heist to date by the Lazarus Group. The outfit is a state-sponsored hacking group sanctioned by the United States in 2019 and supported by the Democratic People’s Republic of Korea (DPRK).
Furthermore, Tornado Cash was used to launder more than $96 million obtained from the Harmony Bridge Heist on June 24, 2022. In addition to at least $7.8 million from the Nomad Heist on August 2, 2022, both of which are closely linked to the Lazarus group.
Source: Elliptic Analysis
In a recent study, Elliptic also revealed that Tornado Cash had been used to launder at least $1.54 billion in criminal proceeds through thefts, hacks, and fraud. Speaking about the sanctions, Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said,
“Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States. Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”
Consequently, the actions against Tornado Cash follow sanctions similarly imposed in May 2022 on another popular service, Blender.io. These actions have come following increased attention from government officials over using mixers to hide transaction trails.
Implications Of The Sanctions
Earlier Coindaily press reported the growing use of Mixers by money laundered with over $52 million passing through them. It seems that the growing interest has caught the attention of authorities bent on stemming the tide. However, how the sanctions will be enforced is still yet to be seen.
As part of the sanctions, Tornado Cash and its associated crypto wallet addresses have been added to the “Specially Designated Nationals list.” Therefore any person caught interacting with the associated addresses could now face criminal penalties. This is a cause of concern for some crypto holders with honest intentions and no criminal intentions. The Treasury Department said,
“All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt,”
However, Coin Center, a nonprofit focused on crypto regulation, believes that enforcing its decision would be difficult for the government. It cited that the decentralized nature of Tornado Cash and the use of smart contracts make it different from other entities on the SDN list. Thus, the government’s actions are technically a ban on technology rather than a sanction against a person.
Furthermore, it said that the sanction is being utilized to impose restrictions on fund transfer for individuals not convicted of a crime or under suspicion of terrorism. They believe this would restrict Americans who want to safeguard their privacy using their money and a publicly available software tool.
Coincidentally, the sanctions give further credence to Chainalysis’s earlier analysis that illicit funds were being passed through mixers. Meanwhile, it also indicated that state-sponsored groups make up the bulk of illicit funds sent to mixers.
Do you think the Treasury Departments’ ban is justified considering Tornado Cash is a decentralized protocol and normal citizens use it too? Let us know your thoughts int the comments below.
Chris is a crypto enthusiast and a firm believer in the blockchain’s ability to create a new financial paradigm. Through writing, Chris hopes to expose the intricacies of this disruptive technology and how it is beneficial to Africans and developing countries. He aims to give readers a rational and unbiased outlook of the industry by equipping them with the necessary information to make enlightened investment decisions.
