Alejandro Arrieche
The US Treasury Department has clarified that sharing the code of controversial crypto mixer Tornado Cash will not be considered a violation of its sanctions.
The clarification comes after backlash from the crypto community over its decision to block the project from operating legally within United States territory, amid allegations that $7 billion has been illegally laundered on the platform since 2019.
According to the Treasury Department, the sanctions ban US residents from engaging in transactions with the protocol. However, it does not ban people from interacting with the code that powers the protocol – as long as this action does not lead to performing a prohibited transaction.
In addition, US residents are permitted to copy, teach, and share the code in written publications, and they may also visit the website if it becomes available on the internet once again or through internet archives.
The Department also commented about cases in which people had initiated transactions with the protocol prior to the announcement of the sanctions. In these specific cases, US residents have to apply for a special license from the Office of Foreign Assets Control (OFAC) that allows them to complete the operation.
What is Tornado Cash and Why Was It Sanctioned?
Tornado Cash is a crypto protocol that allows individuals to obscure the origins and destination of a crypto transaction by performing several intermediate transactions before the assets are sent to their ultimate recipient.
Even though the service may have not been conceived for this particular purpose, it has been used by cybercriminals to launder the money they have illegally obtained from hacking decentralized projects.
The Treasury Department alleges that the protocol was used to launder over $7 billion in stolen assets by prominent criminals including the Lazarus Group, a North Korean state-sponsored criminal organization.
“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”, the Department stated in a press release published on 8 August that outlined the sanctions.
Certain groups within the crypto community have pursued legal action against the Treasury Department and its enforcement arm, as they believe that a distinction should be made between whether the protocol engaged in any wrongdoing, or if it was the people who used the service the ones who committed the crime.
For advocates of decentralization, the Department’s sanctions are a bad precedent for an industry that strives to provide an alternative to traditional banking services, which are forced by law to disclose the identities of all the parties involved in a certain transaction.
Authorities Exert Pressure on Crypto Mixers and Their Developers
Sanctions against Tornado Cash were imposed roughly three months after another similar project, Blender.io, was also targeted by OFAC due to its involvement in facilitating money laundering activities for the Lazarus Group.
One prominent incident where this protocol was used was the hacking of the Ronin Bridge of Axie Infinity, where more than $600 million worth of cryptocurrencies were drained from the smart contract that powered the bridge.
“Virtual currency mixers that assist illicit transactions pose a threat to US national security interests”, commented Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson, in regard to the Blender.io sanctions.
Shortly after the US sanctioned Tornado Cash, the protocol’s website was shut down while GitHub removed all of the files associated with the crypto project. In an interview for CryptoSlate, a member of the developing team commented in anonymity that they “can’t fight the US”.
Contributors who had any association with the project have reportedly gone into hiding due to fear of retaliation from authorities across the world after Alexey Pertsev, one of the developers of the crypto mixer, was arrested in the Netherlands on 12 August.
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This article was written for Business 2 Community by Alejandro Arrieche.
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