On Monday 8 August the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash, which operates on the Ethereum blockchain and which, in the words of OFAC, "indiscriminately facilitates anonymous transactions by obfuscating their origin, destination, and counterparties, with no attempt to determine their origin". This is achieved by mixing a variety of transactions together before transmitting them to their individual recipients.
There are legitimate reasons to use a mixer. For example, earlier this week Ethereum's co-founder Vitalik Buterin tweeted that he has used Tornado Cash to send money to Ukraine, thereby avoiding scrutiny from the Russian government.
Nevertheless, OFAC claims that Tornado Cash has been used to launder more than $7 billion worth of virtual currency since its creation in 2019, and that this includes over $455 million stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group.
This is not first time that the nefarious activities of the DPRK in the crypto space have attracted attention. The UN Security Council has previously pointed to the "widespread and increasingly sophisticated use" by the DPRK of "cyber means to illegally force the transfer of funds from financial institutions and cryptocurrency exchanges, launder stolen proceeds and generate income in evasion of financial sanctions". In particular, the Council has observed how "large-scale attacks against cryptocurrency exchanges allow the [DPRK] to generate income in ways that are harder to trace and subject to less government oversight and regulation than the traditional banking sector".
Here in the UK, regulators are keenly aware of the money laundering risks posed by crypto. Most recently on this front, the Money Laundering, Terrorist Financing and Transfer of Funds (Amendment) (No.2) Regulations 2022 have introduced a change in control regime for registered cryptoasset firms that fall within scope of the Money Laundering Regulations 2017. This means that, from 11 August 2022, any person who decides to acquire 25% or more control of an FCA registered cryptoasset firm must receive prior FCA approval before completing the transaction.
Returning to Tornado Cash, the press release announcing the sanctions warns that "Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them”. This 'aggressive' approach is certainly one to watch.