Crypto firms say US sanctions limit use of privacy software

WASHINGTON (AP) — The Treasury Department is facing backlash from the cryptocurrency industry over sanctions imposed on a firm accused of helping launder billions of dollars — with some funds going to North Korean hackers.

Earlier this month, the Treasury Department imposed sanctions on virtual currency mixing firm Tornado Cash, which has allegedly helped launder more than $7 billion in virtual currency since its creation in 2019.

Commingling services combine various digital assets, including potentially illegally and legally obtained funds, to keep the origin of the funds secret, including money that has been stolen.

In the weeks since the sanctions were announced, crypto firms, lobbyists and at least one lawmaker have come to the firm’s defense, saying the sanctions open the door to restricting Americans’ use of privacy software.

Coin Center, a crypto advocacy nonprofit, says Treasury’s financial crime enforcement arm “exceeded its legal authority” through its sanctions, which “potentially violate constitutional rights to due process and free speech.”

A cryptocurrency firm, Tether, has said it will not freeze its accounts linked to Tornado Cash and intends to keep them open. And rope. Tom Emmer (R-Minn.), who has received at least $50,000 in Blockchain Association CEO contributions this year, wrote to Treasury Secretary Janet Yellen this week asking for the rationale for sanctioning Tornado Cash, saying that sanctions “impact not only our national security, but the right to privacy of every American citizen.”

He told The Associated Press that the sanctions punish Americans who use the firm’s software for legitimate purposes. “My government has no business sanctioning my ability to use a software that protects my anonymity, especially when I use it for legitimate purposes,” he said.

The firm’s defense comes as Tornado Cash developer Alexey Pertsev was arrested by Dutch authorities in early August, days after US sanctions were imposed, for allegedly facilitating money laundering.

The Treasury’s Office of Foreign Assets Control says Tornado Cash’s systems were used, among other things, to launder more than $96 million withdrawn from the June Harmony blockchain bridge theft and the August Nomad crypto firm.

A Treasury Department spokesperson said the agency is focused on disrupting criminal behavior and will use its sanctions powers to protect the U.S. financial system from illegal activity such as cyber theft, money laundering and arms proliferation financing.

Kristin Smith, executive director of the Blockchain Association, said the sanctions affect law-abiding users of crypto-mixing technology.

“If you’re paid in cryptocurrency, transactions on most blockchains are transparent,” she said, adding that mixers are used by those who don’t want their transactions to appear on a public ledger.

“I think we need to have a conversation around privacy and strengthening law enforcement without undermining people’s ability to have private transactions,” Smith said.

This is not the first set of sanctions against a firm that commingles digital assets.

In May, the United States announced sanctions against North Korean digital currency blending firm Blender.io, accused of helping the Lazarus Group, the sanctioned North Korean cyber hacking group, carry out a $600 million digital currency heist in March.

Since the Tornado Cash sanctions, crypto experts have speculated whether anticipated regulations will result in a ban on mixing services.

The Biden administration issued an order on digital assets in March that partly requires regulations for the industry.

“This could be the end,” Smith said, “but we won’t know until we see the regulations.”

This story has been corrected to show that the CEO of the Blockchain Association, not the association, contributed to Emmer.

Find out more about cryptocurrency: