US Treasury group blacklists cryptocurrency mixer Tornado Cash over predictable “money laundering” claims

08/11/2022 / By Belle Carter

The Department of the Treasury‘s Office of Foreign Assets Control (OFAC), a U.S. government watchdog agency, sanctioned cryptocurrency mixer Tornado Cash on Monday, August 8. The OFAC said Americans could no longer use the app because it “launders the proceeds of cybercrimes.”

“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,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson said in a press release.

Tornado cash is a virtual currency mixer that operates on the Ethereum blockchain and indiscriminately facilitates anonymous transactions by obfuscating their origin, destination and counterparties, with no attempt to determine their origin, the statement included.

The app receives a variety of transactions and mixes them together before transmitting them to their individual recipients. Though the purpose is to protect the privacy of the users, these crypto mixing service apps are rampantly used to launder funds, especially those stolen during significant heists.

“Virtual currency mixers that assist criminals are a threat to U.S. national security,” the finance department said.

Earlier this year, Tornado was involved in a high-profile virtual currency theft. This included the $615 million heist of tokens from Ronin, a network supporting the nonfungible token game Axie Infinity as well as a $100 million attack on U.S. startup Harmony. Both incidents were tracked by security researchers to the Lazarus Group, a cybercrime group made up of an unknown number of individuals run by North Korea.

According to blockchain analysis provider Elliptic, at least $1.5 billion in proceeds from crimes such as ransomware, hacks and fraud as well as $100 $100 million stolen from the Harmony bridge in June have been laundered through Tornado Cash. A total of just over $7 billion in crypto assets have been sent through the platform.

“The United States will continue to pursue actions against mixers laundering virtual currency for criminals and those who assist them,” Secretary of State Antony J. Blinken said in a statement released on Monday. (Related: California regulator to investigate crypto companies for not disclosing risks of crypto lending activities.)

Anonymous user sends money to celebrities via Tornado Cash

As per OFAC, Tornado Cash and its associated crypto wallet addresses have been added to its “specially designated nationals list,” and anyone interacting with these wallet addresses could now face criminal penalties.

“These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person,” the press release stated.

Penalties for willful noncompliance can range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment.

However, an anonymous entity is still sending Ethereum cryptocurrency to celebrities from a Tornado Cash wallet. The platform’s design makes it impossible to trace the source of the transactions.

As per Etherscan, a decentralized smart contracts platform, Ethereum wallets of celebrities Jimmy Fallon, Shaquille O’Neal, Dave Chappelle, Coinbase CEO Brian Armstrong and YouTuber Logan Paul were reportedly “dusted” or received small amounts of the cryptocurrency.

Other notable companies that just received funds from a government-sanctioned entity is clothing brand PUMA, the Ukraine crypto donation wallet and pop culture crypto figure Beeple.

Analysts say this may be a statement from users or even syndicates that it would be difficult for the government to enforce the ban on the crypto app due to its privacy design.

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