Circle Freezes Funds Linked to Tornado Cash Addresses

Key Insights:

• More than 40 cryptocurrency addresses have been added to OFAC’s Specially Designated Nationals and Blocked Persons list. 
• Circle has frozen over 75,000 USDC worth of funds linked to Tornado Cash addresses. 
• U.S. persons and entities who use Tornado Cash could face penalties or imprisonment. 

The U.S. Treasury Department has officially banned all American citizens from using the decentralised crypto-mixing service Tornado Cash.

More than 40 cryptocurrency addresses allegedly connected to the controversial mixer has been added to the Specially Designated Nationals and Blocked Persons (SDN) list of the Office of Foreign Asset Control (OFAC). In light of this, Circle has taken steps to freeze funds linked to Tornado Cash addresses.

Sanctions

After the U.S. Treasury Department’s announcement, Circle, the issuer of the USD Coin (USDC) stablecoin, decided to freeze over 75,000 USDC worth of funds linked to the 44 Tornado Cash addresses sanctioned by OFAC’s Specially Designated Nationals and Blocked Persons list.

The Office of Foreign Assets Control is a watchdog agency that enforces economic and trade sanctions based on U.S. foreign policy in order to preserve national security, foreign policy and the economy. OFAC’s new ruling means that all U.S. persons and entities are banned from using the Tornado Cash tool or any of the Ethereum (ETH) wallet addresses tied to the protocol. Those who do may face criminal penalties.

Penalties range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment. Running or downloading its software, working for the project, visiting its website or depositing/withdrawing from smart contracts would be considered a violation.

As it stands, an estimated $437 million worth of assets, consisting of stablecoins, Ethereum and wrapped Bitcoin (WBTC), are held in Tornado Cash’s smart contract addresses. Issuers are now expected to act on OFAC’s ruling in order to prevent the transaction or redemption of such assets.

Money Laundering

As a virtual currency mixer used to obfuscate transactions, Tornado Cash has been at the centre of controversy. This is despite the company announcing last month that it had fully open-sourced its user interface code and added a compliance tool that allowed users to show the source of any transaction.

The U.S. Treasury Department alleges that individuals and groups have used the mixer to launder more than $7 billion worth of crypto since 2019. Tornado Cash has been utilised by Lazarus Group, a North Korean hacking collective linked to the $625 million hack of Axie Infinity’s Ronin Network. In fact, tens of millions of dollars’ worth of crypto stolen from Ronin flowed through Tornado Cash.

OFAC previously sanctioned Blender.io, another mixing service that the Treasury Department alleged was used to launder proceeds from ransomware attacks, as well as about $20.5 million (173,600 ETH and 25.5 million USDC) in crypto stolen from Ronin.

In addition, Tornado Cash has gained further media attention during a string of recent decentralised finance (DeFi) exploits, including a $375 million attack on Wormhole and a $100 million hack on Horizon Bridge.