OFAC has imposed economic sanctions on cryptocurrency blending service Tornado Cash, barring US individuals and businesses from using its services.
Because Tornado Cash allows customers to disguise the origins of crypto transactions, it has reportedly been exploited by criminals to launder money, including proceeds from ransomware attacks.
This is another step in the US government’s efforts to crack down on illicit financial activities in the virtual currency ecosystem.
Standard Liability for Violation of OFAC Sanctions; Therefore, given the government’s focus on potential cryptocurrency money laundering, US companies may wish to engage a risk mitigation consultant.
On August 8, 2022, the Treasury Department’s Office of Foreign Asset Control (OFAC) imposed economic sanctions on Tornado Cash, a popular cryptocurrency mixing service that allows customers to disguise the origin of virtual currency transactions by “mixing” multiple transactions. are. and then redistribute. While shuffling can have legitimate benefits in some transactions, it can also be exploited by criminals to launder cryptocurrency, including those obtained in connection with CryptoKitties ransomware attacks.
OFAC drafted the sanctions under Executive Order 13694, issued in response to a surge in ransomware attacks targeting cyber-enabled threats to US national security. Tornado Cache was responsible for the “laundry,” according to OFAC.[ing] Cybercrime proceeds, “more than the equivalent of $455 million stolen by the Lazarus Group, a state-sponsored hacking group in the Democratic People’s Republic of Korea (DPRK) that the United States sanctioned in 2019. Tornado, including the designation Cash Cash, restricts US persons from using the service because it has been placed on OFAC’s list of Specially Designated Citizens (SDNs).
The move is the latest sign US authorities are paying attention to Mixer’s role in the anti-money laundering landscape. In October 2020, the Department of Justice placed a disclaimer on mixers in its cryptocurrency enforcement framework, warning that operators of mixing services could face criminal liability for money laundering. In 2021, the DOJ sued the operator of dark web-based mixer Helix, who admitted the service targeted narcotics sales and other illegal transactions.
Tornado Cash’s naming comes just three months after OFAC’s blending service, Blender.io, was first named, which was also accused of laundering virtual currencies for Lazarus Group. Unlike Blender.io, which offers more traditional centralized mixing services, Tornado Cash is a smart contract-based mixing protocol built on top of the Ethereum blockchain and does not offer custodial services. In March 2022, one of its three founders claimed that Tornado Cache’s code allowed the service to run indefinitely without control or maintenance from its developers.
The Tornado Cache example underscores the uncertainty surrounding the potential liability of Mixer developers for the actions of their customers. Federal officials may have avoided these questions by following a prohibitory enforcement approach rather than more traditional criminal or civil sanctions; The US government generally has greater discretion and less burden in imposing economic sanctions on non-US persons. It remains to be seen whether the move marks a shift in strategy — perhaps a subtle prioritization of disruption over law enforcement — or instead simply signals that US officials are using the full range of tools at their disposal to help these firms. They want to target what they believe is the convenience of money. Cleaning.
In a press release announcing the approval of Tornado Cash, OFAC stated: “The Treasury will continue to investigate the use of Mixer for illicit purposes and will use its agencies to respond to illicit financial risks in the virtual currency ecosystem.“(Emphasis added). Virtual currency companies may wish to review and update their anti-money laundering/countering the financing of terrorism (AML/CFT) and sanctions programs, particularly those related to cryptocurrency businesses. Cryptocurrency businesses should ensure that approved Mixers like Tornado Cash may still be able to operate despite sanctions Accordingly, cryptocurrency firms subject to US jurisdiction must ensure the following Please note that their platform does not transact with licensed entities like Tornado Cash, as violations of OFAC restrictions carry a ” “Strict Standard of Liability” which means no intent, knowledge or cause The person is dealing with an Approved Person necessary for the breach to occur.
 See January 2017 GT Alert.
 See October 2020 GT Alert.
©2022 Greenberg Trourig, LLP. All rights reserved. Review of National Law, Vol. XII, No. 224