Crypto Mixer Tornado Cash Sanctioned By US For Involvement In North Korean Hacker's Money Laundering

Tornado Cash, allegedly involved in money laundering. (photo: twitter @tornadocash)

JAKARTA - The US Treasury Department has added a crypto mixer, Tornado Cash, to its list of sanctioned organizations. They also bar all US citizens from interacting with it and require that US assets belonging to Tornado Cash be reported to the Office of Foreign Assets Control.

The announcement was made on Monday morning, August 8, by the Treasury Department in a press release citing Tornado Cash's role in laundering stolen cryptocurrencies in major hacks, particularly those linked to North Korean hacking groups.

In March, 625 million US dollars (Rp 9.2 trillion) was stolen from the blockchain behind the crypto game Axie Infinity and laundered via Tornado Cash. This is a theft case that the FBI has linked to the North Korea-based Lazarus Group.

The Treasury's dramatic move is the latest escalation in a series of enforcement actions against Tornado Cash and other crypto mixers, which helped obscure cryptocurrency transactions by raising funds together. They then redistribute it to contributors.

In a statement, Brian E. Nelson, the Treasury Department's undersecretary for terrorism and financial intelligence, said the mixer had not taken adequate steps to prevent its services from being used by some of cybercriminals' most prolific.

"Today, the Treasury Department sanctioned Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those perpetrated against victims in the United States," Nelson said, as quoted by The Verge.

"Despite public guarantees to the contrary, Tornado Cash has repeatedly failed to implement effective controls designed to stop it from laundering funds to malicious cyber actors on a regular basis and without basic steps to address the risks," he added.

"The Treasury will continue to aggressively pursue action against mixers that launder virtual currency for criminals and those who assist them," Nelson said.

Tornado Cash is now the second cryptocurrency mixer to be effectively cut off from the US financial system. In May, the Treasury Department added Blender.io to its sanctions list, also citing the use of Blender by North Korean hacking groups as well as global ransomware gangs such as Conti and Trickbot.

Despite the privacy-focused use of cryptocurrency mixers, tools like Tornado Cash and Blender undoubtedly play a central role in helping organized criminal gangs launder the proceeds of crime in ways that standard blockchain tracking techniques cannot.

In January 2022, blockchain analytics firm Chainalysis reported that the use of crypto mixers had reached an all-time high, with the year-over-year increase driven largely by input transactions originating from wallet addresses linked to cybercrimes.

In a possible attempt to circumvent regulation, Tornado Cash was founded as a decentralized financial product, meaning that the software code that runs the service is distributed across the Ethereum network rather than running on servers based in one specific country.

However, the Treasury Department sanctions list entry for Tornado Cash targets mixers by specifying a number of Ethereum addresses linked to them, prohibiting US entities of any kind from transacting with these addresses.

While the sanctions against Tornado Cash were a stern rebuke from the Treasury, the accompanying press release appears to open the door for policy changes if mixers operate more in line with the guidance provided by regulators.

"The ultimate goal of sanctions is not to punish, but to bring about positive changes in behavior," the statement said.