The United States makes clear that crypto decentralization is not a protection against sanctions
In its pursuit of money laundering by North Korean hacking groups, the United States has filed accusations against individuals, organizations, and even the government of North Korea. It has frozen bank accounts, issued extensive fines, and tracked alleged money launderers far onto the dark web.
The investigation of Lazarus Group, which is suspected of laundering millions of dollars in stolen cryptocurrencies, took an unusual turn earlier this month when the United States sanctioned a blockchain-based application.
The action shocked the cryptocurrency community, which depends on the same infrastructure for legal money transfers. Experts are already questioning if this indicates a more aggressive stance by the United States towards regulating decentralized applications. And the case has also raised perplexing problems about how precisely to govern an uncontrolled piece of code.
Tornado Cash is a cryptocurrency “mixer” that enables users on the Ethereum blockchain to conceal the source and receivers of their transactions. Holders of cryptocurrencies employ mixers to safeguard the anonymity of their accounts on hyper-transparent blockchains such as Ethereum. The issue, according to the US Treasury Department, is that money launderers often use mixers.
Since its launch in December 2019, Tornado Cash has handled more than $7 billion worth of Ethereum on behalf of around 60,000 consumers. US officials claim that among these users is Lazarus Group, a regular target of US sanctions. The US says that Lazarus most recently utilized Tornado Cash to launder a portion of the $620 million in stolen cryptocurrency from the popular cryptocurrency game Axie Infinity.
Allegedly, the stolen monies were laundered using numerous mixers, while the other mixer was developed and held by a private corporation. Tornado Cash is unusual among sanctioned mixers in that it is open-source software (anyone can duplicate it) that is designed to be decentralized and lives on a globally distributed ledger.
The Office of Foreign Assets Control (OFAC) of the Treasury Department imposes financial penalties on persons and organizations deemed to represent security concerns, such as terrorists and drug traffickers. Three of Lazarus’ known Ethereum addresses were added to OFAC’s sanctions list in April, followed by Blender, a privately owned mixer, in May, and Tornado Cash on August 8.
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