All US residents are prohibited from interacting with the Tornado Cash crypto mixer as a result of the US Department of the Treasury adding it to a list of sanctioned organisations and demanding that any US assets owned by Tornado Cash be reported to the Office of Foreign Assets Control.
The Treasury made the statement on Monday morning in a press release that emphasised Tornado Cash's function in the laundering of cryptocurrencies taken in significant hacks, including those connected to North Korean hacker gangs. The Axie Infinity blockchain was compromised in March, and $625 million was taken from it and laundered through Tornado Cash. The FBI has linked this robbery to the North Korean-based Lazarus Group.
The dramatic action by the Treasury is the most recent in a string of enforcement measures the government has taken against Tornado Cash and other cryptocurrency mixers, which work to hide bitcoin transactions by pooling money and then dispersing it to donors. Brian E. Nelson, under secretary of the Treasury for terrorism and financial intelligence, claimed in a statement that the mixer had not done enough to stop some of the most active hackers from using its services.
“Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States,” Nelson said. “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,” Nelson said.
Now that Tornado Cash has been effectively cut off from the US financial system, it is the second cryptocurrency mixer to experience this. The usage of Blender by international ransomware gangs like Conti and Trickbot as well as North Korean hacker groups led the Treasury to put Blender.io to its sanctions list in May.
Tornado Cash and Blender definitely play a crucial part in helping organised criminal gangs launder the proceeds of crime in a way that cannot be traced by conventional blockchain monitoring techniques, despite the fact that there are legitimate privacy-focused uses for bitcoin mixers. The use of cryptocurrency mixers had peaked in January 2022, according to a research from blockchain intelligence company Chainalysis, with year-over-year gains mostly driven by input transactions coming from wallet addresses associated with cybercrime.
Tornado Cash was designed as a decentralised finance product, which means that rather than functioning on servers located in a single nation, the service's software code is dispersed across the Ethereum network, possibly in an effort to avoid regulation. The inclusion for Tornado Cash on the Treasury's sanctions list, however, singles out a number of Ethereum addresses that are connected to it and prohibits US organisations of any type from conducting business with them.
The Treasury Department has severely reprimanded Tornado Cash, but the press release that goes along with it seems to provide room for policy reform should the mixer operate more in line with regulators' instructions.
“The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior,” the statement ends.