What is Tornado Cash?
Tornado Cash is a type of cryptocurrency that runs on the Ethereum blockchain. Created in 2019, it is known for being a cryptocurrency mixer– a type of virtual currency that offers enhanced anonymity and privacy. Tornado currency is able to ‘mix’ identifiable or suspicious transactions with others and scramble the trail to make the original transaction untraceable. The cryptocurrency service blends all transactions in private pools before sending them to the intended receiver.
Unfortunately for these mixer currencies, their enhanced anonymity has led to their usage in many money laundering and similarly vile activities. Since its creation in 2019, around $1.5 billion in illegal earnings through scams, frauds, and ransomware have been transferred through Tornado Cash. It has been estimated that money launderers have used the currency to move around $7 billion in cash to date, making it impossible to trace due to its mixer properties.
How Tornado Cash Caught the Eye of the OFAC
Due to its dubious nature, Tornado Cash caught the eye of the United States Office of Foreign Assets Control (OFAC), which deemed it in violation of E.O. 13694 for having been used as a means to and providing a platform to transport illegally gotten funds that may be used for further criminal activities, that may even constitute as a national threat. The use of such money may even compromise trade integrity, personal information, private financial information, and overall economic resources and stability. Criminals have been increasing their use of mixer currencies, providing them with added security and shielding them from the eyes of crime investigators.
The OFAC decided to put sanctions on illicit mixer cryptocurrencies to crack down on digital money laundering and stop other criminal financial activities.
Mixer Currencies and the OFAC
The first time the OFAC was found taking such action was in May of this year when they put sanctions on Blender.io, a currency mixer facility founded on the Bitcoin blockchain. Criminals from the Democratic People’s Republic of Korea (DPRK) were found to be using the currency to carry out money laundering activities, with many hacking groups, including the DPRK-sponsored Lazarus Group, conducting heists targeting people and organizations all over the world.
Since being blocked from using Blender.io, the Lazarus group was also found to be using Tornado Cash, via which it pulled off a heist stealing around $445 million. The group was also behind stealing $625 from the Ethereum-based Ronin network, which was created for the game Axie Infinity and also stole more than $100 million from Harmony’s Horizon Bridge on Ethereum.
Since then, the US Treasury has been on the lookout for similar crypto mixer facilities, as they play a heavy role in the transfer of illicit funds both in and out of the country. The Treasury considers such activities to be national-level threats, as they pose a danger to national security. The Treasury has advised virtual currency firms to avoid dealing with these mixers unless they have to and consider them as extremely high-risk tools due to the nature of their usage. They must only interact with mixers in case they have put the necessary controls in place to prevent malpractice.
How the Sanctions have affected Tornado Cash
According to the sanctions placed upon Tornado Cash by the OFAC, all property and assets in the name of Tornado Cash owned by individuals or organizations in the United States must be reported to the OFAC, who will block them. Any assets that are 50% or more in possession of blocked persons will also be blocked and investigated for any connections with money laundering and the like. Anyone seeking to trade in Tornado Cash must be granted a special license from the OFAC explicitly stating that they can do so.
The OFAC will add such people to the Specially Designated Nationals And Blocked Persons List (SDN) until it is confident that the person is no longer affiliated with such activities. It has declared that its use of such extreme sanctions is not to punish the people using Tornado Cash for their actions but to ultimately bring positive changes and decrease illicit activities. Sanctioned entities may also attempt to use cryptocurrency to bypass sanctions hence the OFAC intends to crack down on crypto tumblers and anonymity-enhanced currencies to increase controls on who transfers money in and out of the United States.
Conclusion
The OFAC sanctioned Tornado Cash, a virtual currency mixer based on the Ethereum blockchain, for failing to keep enough controls, which would prevent malicious actors from using it for money laundering and other similar purposes. In its promise to provide enhanced anonymity, it aided entities with hostile intentions to the nation and society. People who continue to use this currency in the future may be targeted by the OFAC for suspicious behavior and placed on the SDN list of blocked persons.
