(Kitco News) - The Tornado Cash saga shows no signs of coming to a conclusion anytime soon as the U.S. Treasury has doubled down on its enforcement efforts on the cryptocurrency mixer despite significant pushback from some of the crypto industry’s most prominent players.
On Tuesday, the Treasury's Office of Foreign Asset Control added a new designation to the Ethereum-based crypto mixer, labeling the platform as a supporter of North Korea’s nuclear weapon development program.
“This action is part of the United States’ ongoing efforts to limit the DPRK’s ability to advance its unlawful weapons of mass destruction (WMD) and ballistic missile programs,” the announcement said.
According to the Treasury Department, Tornado Cash smart contracts have been utilized by various actors, including the cybercrime collective known as Lazarus Group, to obfuscate the source of funds acquired from cyber heists.
“Malicious cyber actors subsequently used the Tornado Cash smart contracts to launder more than $96 million of funds derived from the June 24, 2022 Harmony Bridge Heist, and at least $7.8 million from the August 2, 2022 Nomad Heist,” the OFAC said.
In simple terms, this move by the OFAC has solidified Tornado Cash’s position as a threat to national security and ensured that U.S. citizens are barred from using the platform.
The new designation is likely to play a part in multiple lawsuits that have been filed by the crypto industry against the Treasury Department and its Tornado Cash sanctions. Those suits allege that since Tornado Cash operates from a decentralized smart contract, it cannot be considered an “entity” as laid out by the terms of OFAC's sanctioning authority.
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The nonprofit Coin Center has argued that the OFAC “exceeded their statutory authority because Tornado Cash is used to complete functions that do not include 'any property in which any foreign country or a national thereof has any interest’.”
The OFAC sought to address these concerns with an update to its FAQ section. “OFAC designated the entity known as Tornado Cash, which is a 'partnership, association, joint venture, corporation, group, subgroup, or other organization' that may be designated pursuant to IEEPA,” the office wrote in its latest guidance.
Challenges to the Treasury’s move to sanction software have the potential to become landmark cases for the blockchain industry. Coin Center and Coinbase-backed lawsuits are attempting to convince the court that the government overstepped its authority in targeting software, as opposed to an individual or entity, and exceeded the statutory language and intent that give the department the power to issue economic sanctions.
