U.S. Treasury Sanctions Ethereum Tool for Concealing Transactions

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has added a popular Ethereum ‘mixing’ tool to its sanctions list. An announcement on the Treasury’s website confirms that the protocol’s website and associated smart contracts are now blocked.

– The Treasury sanctions Tornado Cash, a virtual currency mixer that launders proceeds from cybercriminals, including those committed against victims in the United States. Despite assurances to the contrary, Tornado Cash has repeatedly failed to implement effective controls designed to prevent it from regularly laundering funds for malicious cyber actors and lacks basic measures to address its risks.

The Treasury will continue to aggressively take action against mixers that launder virtual currency for criminals and those who assist them, said Treasury Under Secretary for Terrorism Brian E. Nelson.

The press release also claims that the protocol has been used ‘to launder virtual currency’ worth over seven billion dollars since its inception in 2019. According to data from Dune Analytics collected by @poma, Tornado Cash has recorded $7.6 billion in volume, suggesting that the department may classify all previous transactions as attempts to launder funds.

Secretary of State Anthony Blinken also issued a ban statement, including a dubious claim that Tornado Cash was a hacker group sponsored by North Korea. He added that the government will continue to aggressively enforce actions against currency mixers that launder virtual currency for criminals.

Popular Among Hackers

Tornado Cash is a popular application that allows Ethereum users to conceal transactions to maintain their privacy. It enables users to deposit cryptocurrencies into smart contracts and then withdraw them from a new address, making their on-chain activity harder to trace. Tornado Cash has become a pillar of the Ethereum ecosystem for many users, but it has also gained notoriety for its popularity among hackers.

Whenever a DeFi hack occurs on Ethereum, thieves typically use Tornado Cash to cover their tracks and escape with stolen funds. Over a billion dollars in illicit funds have flowed through the protocol over the past year, including a portion of $550 million stolen in a record attack on the Ronin bridge of Axie Infinity in March.

Tornado Cash sparked controversy in the community in April when it announced that it had begun using Chainalysis oracle to block addresses sanctioned by OFAC.

– Maintaining financial privacy is crucial to preserving our freedom; however, it should not come at the cost of non-compliance, Tornado Cash stated at the time, raising questions about the degree of decentralization.

OFAC has previously issued several crypto-related sanctions, but this one is significant in that it targets the protocol itself, not just the frontend website. The list of blocked addresses includes a proxy address, a deposit contract of 10 ether, 100 ether, and a deposit contract of 100 dai, among others.