Crypto mixing service Tornado Cash blacklisted by Treasury Department for alleged use in laundering

The U.S. Department of Treasury on Monday sanctioned the popular cryptocurrency mixer Tornado Cash, banning Americans from using a service that the government said, “launders the proceeds of cybercrimes.”

“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,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson said in a statement.

Crypto asset mixers are designed to obscure trails of funds by blending someone’s tokens with a pool of other individuals’ assets on the platform. They go beyond traditional crypto platforms in further concealing the identity of the people involved in transactions.

While Tornado Cash is used by some people just as a legitimate way to protect their privacy, the government says it fosters illicit activity, including “facilitation of heists, ransomware schemes, fraud, and other cybercrimes.”

“Virtual currency mixers that assist criminals are a threat to U.S. national security,” the Treasury Department said.

Tornado was used in some high-profile crypto heists this year, including the $615 million theft of tokens from Ronin, a network supporting the nonfungible token game Axie Infinity, and a $100 million attack on U.S. startup Harmony. Both were linked by security researchers with Lazarus Group, a North Korean state-backed hacking group.

Blockchain analytics firm Elliptic found at least $1.5 billion in proceeds from crimes such as ransomware, hacks and fraud have been laundered through Tornado Cash, and that the entirety of the $100 million stolen from the Harmony bridge in June was laundered through the service. 

The U.S. Treasury quoted a much higher figure for Tornado Cash, and said it’s been used to launder more than $7 billion worth of virtual currency since it launched in 2019. That figure refers to the total value of crypto assets that have been sent through Tornado Cash.

Some blockchain analytics tools have managed to “demix” crypto sent through Tornado to identify the source of the funds. Elliptic says it was able to trace crypto stolen from Harmony to several new ether wallets, for example.

The actions against Tornado Cash follow sanctions similarly imposed in May 2022 on another popular service, Blender.io.

“The United States will continue to pursue actions against mixers laundering virtual currency for criminals and those who assist them,” said Antony J. Blinken, Secretary of State, in a statement on Monday.

The Office of Foreign Assets Control (OFAC), a watchdog falling under Treasury’s purview, has added Tornado Cash and its associated crypto wallet addresses, to its “Specially Designated Nationals list.” Any person interacting with these wallet addresses could now face criminal penalties, a cause of concern for some crypto holders with honest intentions.

“All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt,” the Treasury Department said.

However, enforcing such a move may be difficult for the government and overly restrictive, according to Coin Center, a nonprofit focused on crypto regulation. That’s because there’s no single person or entity behind the use of Tornado Cash, an open-source tool.

The action appears to be the “sanctioning of a tool that is neutral in character and that can be put to good or bad uses like any other technology,” Coin Center wrote.

— CNBC’s Dan Mangan and Dawn Kopecki contributed to this report.

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