Why The US Treasury Sanctioned Crypto Exchange Tornado Cash

Per a press release, the U.S. Department of the Treasury announced sanctions against Tornado Cash, a decentralized exchange (DEX). The institution added the website tornado.cash, the entities associated, and several Ethereum-based addresses to their Office of Foreign Assets Control (OFAC) Specially Designated Nationals And Blocked Persons List (SDN).

There are around 40 ETH addresses in this list which in total, according to the U.S Treasury, have processed over $7 billion in total trading volume since 2019. Part of their operation is linked to illegal cyber activities.

$455 million have been linked to a cyber attack allegedly conducted by the North Korea-backed Lazarus Group, a hacking group sanctioned by the Treasury. An extra $100 million have been attributed to the recent Harmony Bridge Heist, and Nomad bridge heist, both conducted in the past few months.

Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, said the following on the announcement and about Tornado Cash’s alleged involvement in illegal activities:

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. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.

The U.S. Treasury made an important clarification in their press release by acknowledging that the majority of crypto trading volume and activity is licit. However, they believe that platforms such as Tornado Cash can be used to enable certain illegal activities.

In particular, the institution is concerned about ransomware schemes, sanctions evasion, darknet markets, fraud, and illegal exchanges. As Bitcoinist reported, Tornado Cash is the second crypto-related entity sanctioned by the U.S. Treasury, the first was Blender.io.

Why Are These Sanctions Against Tornado Cash Different?

The Treasury is seemingly becoming more active in imposing sanctions on crypto companies and entities. In the case of Tornado Cash, the institution even targeted its potential source of revenue for future development.

An analyst for Nansen pointed out that the address holding contributions and donations for Tornado Cash was included in the OFAC’s SDN list. The crypto community has been quick to respond to the Treasury’s announcement.

Just to clarify: it’s the Tornado Cash wallet where they recieved Gitcoin grants: https://t.co/WqNyPxeldo

I’d forgotten that the Iron Bank attacker donated lmao pic.twitter.com/fygelqI05r

— Andrew T (@Blockanalia) August 8, 2022

In a separate press release, crypto think tank Coin Center highlighted that the sanctions will affect U.S. citizens’ access to Tornado Cash. The OFAC’s SDN list was created to identify persons involved in criminal activities, such as terrorism.

However, Coin Center said, Tornado Cash is not a person or living entity or a company capable of making judgments, but rather “a robot”, a software hosted on the Ethereum blockchain. Thus, the tool and its technology are neutral. The release said:

Sanctioning a tool that is not an alias of any person meriting sanction is substantially different from typical usage of the SDN list. It is a ban on a technology and not a sanction against a person.

Jerry Brito, Executive Director at Coin Center, added:

Today’s action does not seem so much as a sanction against a person or entity with agency. It appears instead to be the sanctioning of a tool that is neutral in character and that can be put to good or bad uses like any other technology.