US Treasury Sanctions Tornado Cash, Accused of Laundering Stolen Crypto – TechCrunch

The United States has sanctioned decentralized cryptocurrency mixing service Tornado Cash for its role in enabling billions of dollars worth of cryptocurrency to be laundered through its platform.

Tornado Cash, along with other mixers such as AlphaBay, allows customers to hide the source of their crypto funds when participating in a transaction in exchange for a fee. It mixes potentially identifiable or tainted cryptocurrency funds with others to obscure the source and destination of crypto assets.

The Office of Foreign Asset Control (OFAC), a watchdog within the US Treasury Department tasked with enforcing sanctions violations, confirmed the sanctions against Tornado Cash on Monday, immediately banning US citizens and businesses from using the service.

Tornado Cash, which allows users to make private transactions on the Ethereum network, has laundered more than $7 billion in virtual currency since it was created in 2019, the Treasury Department said.

At least $1.5 billion in proceeds of crime such as ransomware, hacks and scams have been laundered through Tornado Cash to date, a spokesperson for crypto analytics platform Elliptic told TechCrunch in an email. Elliptic contrasted this figure with the $7 billion cited by the Treasury, writing that the higher figure refers to the total value of cryptoassets that have been sent through Tornado Cash, which could include “legitimate use of mixers like Tornado, for example to preserve financial privacy.”

The laundered funds include $445 million stolen by the Lazarus Group, a notorious North Korean-backed hacking group already under US sanctions. The US previously linked Lazarus to the theft of $625 million in cryptocurrency from the Ronin Network, an Ethereum-based sidechain created for the popular play-to-earn game Axie Infinity, and more recently the $100 million theft from Harmony’s Horizon bridge. North Korea has long used operations that steal cryptocurrency, as ransom, to fund its nuclear weapons program.

The Treasury also said Tornado was used by hackers to launder at least $7.8 million in stolen crypto funds during last week’s Nomad heist, which saw cybercriminals exploit a trivial flaw to steal $100 million in crypto assets, including Ethereum (ETH), Binance Coin, Tether , USD Coin and Dai.

“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 fundamental measures to manage the risks,” said Treasury Secretary Brian E. Nelson . “Treasury will continue to aggressively pursue actions against mixers who launder virtual currency for criminals and those who assist them.”

Tornado Cash was created in 2019 based on open source research by the team behind Zcash, according to their website. Its co-founder, Roman Semenov, emphasized the tool’s decentralized nature, saying in a January interview with CoinDesk that “the protocol was specifically designed this way to be unstoppable.”

Tornado is not the only cryptocurrency mixer to find itself in hot water with regulators for facilitating illegal activity. Last February, the US Department of Justice arrested a man who ran a similar service called Helix for his role in laundering $300 million.

Back in May, the U.S. Treasury Department also sanctioned cryptocurrency mixer Blender.io, another service Lazarus Group used to launder cryptocurrency stolen after hacking the Ronin Bridge in-game to earn the Axie Infinity video game in April. Both Tornado Cash and Blender.io appeared to play a role in obscuring the digital trail of funds stolen in the $625 million hack, although Tornado was not sanctioned at the time and the Axie-related theft was not mentioned in today’s OFAC announcement.