The U.S. Department of Treasury has listed Tornado Cash on the List of Specially Designated Nationals and Blocked Persons (SDN) and prohibited American persons from using the service. Sanction violations can result in a $330,947 civil penalty as well as up to 30 years in prison.
The government has taken a strong stance against Tornado Cash, which has been related to the money laundering of significant crypto assaults in the past.
The Office of Foreign Assets Control (OFAC) reported that illegal actors have taken advantage of this protocol’s privacy protection capabilities and laundered more than $7 billion in cryptocurrencies since 2019.
No More Privacy
The “mixer” has become a money-laundering tool for the Lazarus Group hacker group, supposedly based in North Korea. Lazarus Group is accused of conducting the historic DeFi attack – Axie Infinity’s Ronin bridge.
OFAC is an enforcement agency in charge of administering and enforcing sanctions against foreign terrorists, traffickers, and, in particular, the governments of several countries considered hostile to US interests.
Cuba, Iran, Iraq, and North Korea are among the countries on the SDN list.
Under OFAC laws, American citizens, residents, and businesses are prohibited from doing business with any of the individuals, entities, or nations on the sanctions list unless the government grants specific permission.
In addition to the growth in cryptocurrency attacks, the fact that Tornado Cash has become the go-to site for the Lazarus Group could be the main reason.
Tornado Cash accounts in the United States will be frozen, along with $437 million in stablecoins, ETH, and WBTC.
Meanwhile, following the revelation of the penalties by US authorities, GitHub terminated Tornado Cash founder Roman Semenov’s accounts, while Circle $USDC blocked Tornado Cash contracts.
Tornado Cash is a protocol for mixing Ethereum tokens that gives clients the possibility to perform transactions on Ethereum while maintaining their anonymity and privacy.
Any money you withdraw is mixed with a bunch of other people’s money, essentially mixing them all together in an immutable smart contract.
When you want to withdraw, you will be given a note and the chance to choose which wallet address you want your withdrawal to be sent to. In a nutshell, Tornado Cash is more likely to act as a mixing service than as a privacy coin like Monero.
Unlike its initial commitment, the service provider has failed to completely prohibit all illegal conduct, reduce money laundering, and manage risk.
According to the US authorities, instead of properly preserving users’ privacy, the business paved the way for money-laundering activities, malware, and other cybercrimes.
Privacy and anonymity, the key points that make Tornado Cash attractive, are dangerous weapons when put in the hands of illicit actors.
Speaking to the media, the US Treasury official Brian E. Nelson noted that “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 that it’s not the last time the agency would battle against the mixing protocol.
Different people had different thoughts about what the US Treasury Department did. Most of the arguments against the ban are about how it will affect honest users who use Tornado Cash for legal privacy reasons.
On the other hand, some people in the community kind of agree with the government’s decision. They say that people who use Tornado Cash often have illegal intentions, and the fact that there have been a lot of attacks in the past few years has made it clear that legal regulation is actually required.
Vitalik Buterin confirmed after the regulatory moves that he used Tornado Cash’s service to send funds to support Ukraine at the beginning of the Ukraine-Russia conflict. Ethereum’s co-founder stated in a tweet “I’ll out myself as someone who has used [Tornado Cash] to donate to this exact cause.”
The event took place in the midst of tighter cryptocurrency restrictions in the United Kingdom and the United States. What if governments order other mixing protocols to follow suit?