Treasury Dept. blacklists crypto platform used in money laundering

The Treasury Department on Monday banned Americans from using the cryptocurrency platform Tornado Cash, saying the service has helped criminals launder more than $7 billion in virtual currencies.

The crash was the US government’s latest attempt to rein in the crypto industry, as lawmakers and regulators grow increasingly concerned about the volatility of virtual currencies and their role in facilitating hacking and other crimes. The Treasury Department called the platform a “threat to US national security” and placed Tornado Cash on a blacklist of sanctioned entities, making it illegal for Americans to send or receive money using the service.

“Despite public assurances to the contrary, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors,” Brian Nelson, Under Secretary for Terrorism and Financial Intelligence, said in a statement.

Criminals have long used virtual currencies to trade anonymously, exchanging digital coins for drugs or other illegal goods. But the anonymity of crypto does not provide blanket security: Crypto transactions are recorded on publicly visible ledgers called blockchains, allowing law enforcement authorities to track the money.

Platforms like Tornado Cash are designed to make that kind of tracking more difficult. These crypto “mixers” receive multiple streams of transactions, then combine them to hide the origin and destination of the funds. According to the Treasury Department, Tornado Cash was used to launder more than $455 million in crypto stolen this year by North Korean-backed hackers called the Lazarus Group.

A message to Tornado Cash’s official Twitter account was not returned. Roman Semenov, one of the company’s three founders, did not respond to a request for comment.

Since its launch in 2019, Tornado Cash has gained prominence, mainly because blockchain records show that hackers have used it to move stolen cryptocurrencies. In interviews, Mr. Semenov has defended the service, saying the software protects the privacy of legitimate crypto traders who could be targeted by kidnappers or thieves.

In a statement, crypto advocacy group Coin Center criticized the Treasury Department’s announcement, arguing that Tornado Cash was a neutral platform “that can be put to good or bad use like any other technology.”

“There is no specific bad actor being sanctioned,” the statement said. “Instead, all Americans want to use this automated tool to protect their own privacy while shopping online.”

As the market for digital currencies has grown, the federal government has increasingly cracked down on crypto companies, which are lightly regulated. Tether, a stablecoin company, was fined by the Commodity Futures Trading Commission last year for misrepresenting its reserves, while the Justice Department brought insider trading charges last month against a former employee of Coinbase, the largest US crypto exchange.

Cryptocurrency exchange Kraken is also under investigation by the Ministry of Finance for possible violations of US sanctions.