Crypto mixer Tornado Cash sanctioned by US Treasury

By Stephan Roth on Tuesday 9 August 2022

Alternative LendingDigital BankingCrypto

Tornado Cash has been linked to two of the largest crypto hacks this year

Crypto mixer Tornado Cash sanctioned by US Treasury
Image source: USTreasury/CC 4.0.

The US Department of the Treasury's Office of Foreign Assets Control (OAFC) has sanctioned crypto mixer Tornado Cash following the laundering of $7bn worth of crypto.

Tornado Cash is a zero-knowledge protocol, which pools multiple streams of funds into a mixer to anonymise the identities, origin and destination of the investors behind the transactions and the nature of their funds. 

US Secretary for Terrorism and Financial Intelligence, Brian E. Nelson, said in a statement: "Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a  regular basis without basic measures to address its risks." 

Despite Tornado Cash being used by legitimate investors seeking greater discretion when moving funds, the US Treasury has accused the mixer of promoting illicit activities, including the "facilitation of heists, ransomware schemes, fraud and other cybercrimes". 

Tornado has been used in some of the largest crypto heists this year, including the $622m Ronin side-chain hack and the $100m hack on blockchain scalability start-up Harmony. 

Both the Ronin side-chain and Harmony bridge hack occurred on cross-chains, bridges that allow investors to move funds between different blockchains.  Incidentally, the two hacks have been linked to the North Korean terrorist group Lazarus. 

According to blockchain data company Chainalysis, cross-chain bridges such as the Ronin side-chain and Harmony bridge have become a "top target" for such terror group exploits. Chainalysis suggests that North Korean hackers have been at fault for $1bn worth of crypto hacks in 2022. 

The Office of Foreign Assets Control (OFAC), has now placed Tornado Cash and any wallets associated with the platform on its "Specially Designated Nationals list". This listing means that individuals using wallets associated with Tornado Cash could be subject to criminal charges. 

Across the crypto space, reactions to the sanctions have been mixed. 

Circle, the parent company of the USDC stablecoin, has frozen USDC funds tied to Tornado Cash's sanctioned wallets and the Github accounts of Tornado Cash staff have allegedly been suspended. 

On the flip-side, Erik Vorhees, the founder of ShapeShift and early bitcoin advocate has called the Github suspensions "the tyranny of US government's sanctions list". 

He mocked: "I'm sure the bad guys will stop using Tornado Cash because it's illegal". 

David Carlisle, Elliptic's Vice President of Policy and Regulatoy Affairs, has said it will be "interesting"  to see whether Tornado Cash would remain a tool for "illiict actors, such as North Korea" or if the platform falls out of favour, forcing criminals to "seek new avenues for money laundering". 

Whether the sanctions and account suspensions are warranted or not, the ability of governments to enforce any restrictions on Tornado Cash users may be limited. The mixer is an open-source tool and is fundamentally decentralised. This means that no entity or person can be easily traced. 

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