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Why did the US Treasury sanction the Tornado Cash cryptocurrency exchange?

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According to a press release, the U.S. Treasury Department announced sanctions against Tornado Cash, a decentralized exchange (DEX). The institution has added the tornado.cash website, associated entities, and various Ethereum-based addresses to its Office of Foreign Assets Control (OFAC) list of Specially Designated Citizens and Blocked Persons (SDN).

There are around 40 ETH addresses on this list which in total, according to the US Treasury, have processed more than $7 billion in total trade volume since 2019. Some of their operations are linked to illegal cyber activities.

$455 million was linked to a cyberattack allegedly carried out by the Lazarus Group, a hacking group backed by the North Korean Treasury. An additional $100 million has been awarded for the recent Harmony Bridge and Nomad Bridge heist, both of which took place in recent months.

Brian Nelson, Treasury Under Secretary for Terrorism and Financial Intelligence, had the following to say about the announcement and Tornado Cash’s alleged involvement in illegal activities:

Despite public assurances to the contrary, Tornado Cash has repeatedly failed to enforce effective controls designed to prevent money laundering to malicious cyber actors on a regular basis and without basic measures to address their risks. The Treasury will continue to aggressively pursue actions against scramblers who launder virtual currency for criminals and those who help them.

The US Treasury made an important clarification in its press release, acknowledging that most cryptocurrency trading volume and activity is legal. However, they believe that platforms like Tornado Cash can be used to allow certain illegal activities.

In particular, the institution is concerned about ransomware schemes, sanctions evasion, darknet markets, fraud and illegal business. As reported by Bitcoinist, Tornado Cash is the second cryptocurrency-related entity sanctioned by the US Treasury, the first being Blender.io.

ETH price with significant gains on the 4-hour chart. Source: ETHUSDT Tradingview
Why are these sanctions against Tornado Cash different?

The Treasury is apparently becoming more active in imposing sanctions on cryptocurrency companies and entities. In the case of Tornado Cash, the institution also directed its potential source of income towards future development.

A Nansen analyst noted that the address with contributions and donations to Tornado Cash was listed on OFAC’s SDN list. The cryptocurrency community quickly responded to the Treasury’s announcement.

Just to clarify: it’s the Tornado Cash wallet where they received Gitcoin grants: https://t.co/WqNyPxeldo

I had forgotten that the Iron Bank striker donated lmao pic.twitter.com/fygelqI05r

— Andrew T (@Blockanalia) August 8, 2022

In a separate press release, cryptocurrency think tank Coin Center highlighted that the sanctions will affect U.S. citizens’ access to Tornado Cash. The OFAC SDN List was created to identify individuals involved in criminal activities such as terrorism.

However, said the Coin Center, Tornado Cash is not a person or living entity or company capable of judging, but rather “a robot”, software hosted on the Ethereum blockchain. Therefore, the tool and its technology are neutral. The statement said:

Sanctioning a tool that is not a pseudonym of anyone deserving the sanction is substantially different from typical use of the SDN list. It is a ban on a technology and not a sanction against a person.

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