In a Monday announcement, the regulator added crypto mixing service Tornado Cash and its Ethereum addresses to the Specially Designated Nationals list for alleged money laundering. From now on, all US citizens are banned from using the service.
“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,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson in the official statement.
Crypto mixers are designed to make transactions more private, as they mix users’ funds in a pool of other assets and then redistribute it, withholding a 1%-3% fee. After going through such a service, funds are practically impossible to trace, although Chainalysis has recently teased a mysterious new tool that would allow them to “demix” Tornado transactions, effectively making crypto mixers obsolete.
But as long as Chainalysis’s “demixenator” isn’t shown to be more than just mere speculation, services similar to Tornado Cash remain a real source of nuisance for blockchain investigators. Hence, their popularity among cybercriminals steadily grows, as illicit addresses accounted so far for 23% of funds sent to mixers this year, a 12% increase compared to 2021.
Compared to other crypto mixers, Tornado Cash particularly stands out, as its name has long been synonymous with the easy way to wash millions coming from DeFi exploits in one go. The mixer was used by the Lazarus Group, a North Korea state-sponsored hacking group, to launder a part of $625 million stolen from Axie Infinity’s Ronin bridge, the biggest crypto heist to date. The mixer was subsequently used to wash $96 million coming from the Harmony bridge exploit and at least $7.8 from the Nomad bridge hack.
Tornado Cash has long been under intense scrutiny from regulators but failed to find common ground with govt institutions.
“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,” the announcement reads.
As Tornado Cash co-founder Roman Semenov explained to Bloomberg in March, it’s impossible to enforce sanctions against the decentralized protocols due to their distributed structure. Nor can founders alter it in any meaningful way.
“We don’t have more access to it than any other users. There’s not much we can do,” Semenov said. “All we do is write code and publish it on GitHub. This is pretty close to the definition of free speech so writing code cannot be illegal.”
Although Tornado Cash has been, without any doubt, used by many cybercriminals, sanctions imposed by the U.S. Treasury may hurt ordinary investors as well, experts warn. The nascent crypto economy is still vulnerable to scams and exploits, and being able to protect yourself from doxxing and targeted attacks is a totally valid reason to conceal your identity on the blockchain.
“There is a need for solutions that can help you cover your tracks, even when you’re not doing anything illicit,” Tom Robinson, chief scientist for blockchain analytics firm Elliptic, told CNBC.
Meanwhile, Treasury vowed it “will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”
