Tornado Cash

Coin Center may challenge US Treasury’s sanctions on Tornado Cash in court

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Coin Center’s Jerry Brito and Peter Van Valkenburgh.

United States-based crypto policy advocacy group Coin Center said it intended to “pursue administrative relief” for individuals affected by Tornado Cash sanctions imposed by the Treasury Department’s Office of Foreign Asset Control, or OFAC.

In a Monday blog post, Coin Center executive director Jerry Brito and director of research Peter Van Valkenburgh alleged OFAC “overstepped its legal authority” when it named cryptocurrency mixer Tornado Cash and 44 associated wallet addresses to its list of Specially Designated Nationals, or SDNs, on Aug. 8. The directors claimed Treasury’s actions could have potentially violated U.S. residents’ “constitutional rights to due process and free speech” and they were exploring bringing the matter to court.

“By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority,” said Brito and Van Valkenburgh.

According to the pair, Coin Center will first engage with OFAC to discuss the situation in addition to briefing members of Congress. The advocacy group will then help individuals with funds trapped on any of the 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash by applying for a license to withdraw their tokens. Following these actions, the organization will begin exploring challenging the sanctions in court.

Brito and Van Valkenburgh claimed that unlike OFAC’s sanctions against cryptocurrency mixer Blender.io in May — “an entity that is ultimately under the control of certain individuals” that better fit the definition of SDNs — “it can’t be said that Tornado Cash is a person subject to sanctions.” According to the Coin Center executives, this was due to the ETH addresses for the mixer smart contract.

“The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today,” said Brito and Van Valkenburgh. “Unlike Blender, the Tornado Cash Entity can’t choose whether the Tornado Cash Application engages in mixing or not, and it can’t choose which ‘customers’ to take and which to reject.”

They added:

“While typical OFAC actions merely limit expressive conduct (e.g. donating money to a particular Islamic charity), this action sends a signal — indeed seems to have been intended to send a signal — that a certain class of tools and software should not be used by Americans even for entirely legitimate purposes. Even if this listing is truly and exclusively aimed at stopping North Korean hackers from using Tornado Cash, and even if the chilling effect on the use of the tool by Americans for legitimate reasons was acceptable to OFAC in a collateral impact analysis, it may not be sufficient to a court.”

Related: Tornado Cash community fund multisignature wallet disbands amid sanctions

Following the announcement of the sanctions against Tornado Cash, individuals associated with the controversial mixer reported being cut off from some centralized platforms amid the controversy. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account on Monday, and users of the mixer’s decentralized autonomous organization and Discord channel said the two media also went dark.

In June, Coin Center took the U.S. Treasury to federal court, alleging the government department provisioned an unconstitutional amendment in the infrastructure bill signed into law by President Joe Biden in November 2021. The group claimed that a provision in the law was aimed at gathering information about individuals engaged in crypto transactions.

Tornado Cash community fund multisignature wallet disbands amid sanctions

The peer-elected signatories for Tornado Cash’s community fund have left the management of the wallet to the DAO.

Following the United States sanctioning USD Coin (USDC) and Ethereum addresses associated with the crypto mixer Tornado Cash, the signatories of the projects’ multisignature community fund havedisbanded. 

In 2021, the Tornado Cash community created a fund to provide incentives to key contributors to the project. The fund was held in a community-managed multisignature wallet with five peer-elected members validating transactions who were selected because of their contributions to the project.

However, given that interacting with Tornado Cash now comes with more risks — including penalties for U.S. citizens ranging from fines of up to $10 million to prison time of up to 30 years — the community members in charge of the fund have vacated their posts and handed control to the project’s decentralized autonomous organization (DAO).

On Aug. 12, the signatories started to relinquish their ability to manage the fund. And on Aug. 14, all five members of the multisignature wallet completely removed their access, leaving only the governance wallet as the fund’s sole owner.

Community members were surprised to see the development and weighed in on the issue of the U.S. Treasury Department sanctioning code. One Twitter user stated that unless something changes, everything and everyone tied to the project could be considered a collaborator. On the other hand, another community member opined that this might be a way to actualize the DAO fully and argued that it’s time for tokenholders to assume responsibility.

Related: Kevin O’Leary says sacrificing Tornado Cash worth it for institutional adoption

Meanwhile, as worries surrounding Tornado Cash pile on, an anonymous user decided to use the opportunity to send Tornado Cash-derived Ether (ETH) to prominent personalities like Jimmy Fallon, Shaquille O’Neal, Dave Chappelle and others. The sender is likely trying to prank law enforcement, directing their attention to the recipients. However, the simple act of receiving the cryptocurrency may not be grounds for criminal proceedings, as a valid case requires “wilful” engagement with Tornado Cash.

Tornado Cash DAO goes down without explanation following vote on treasury funds

Github, Circle, dYdX, Alchemy, and Infura… All platforms have taken action against Tornado Cash or individuals connected to the mixer following U.S. sanctions.

The Tornado Cash DAO went offline after many social media users reported the community discussing ways to challenge sanctions recently imposed by the United States Treasury Department’s Office of Foreign Asset Control.

At the time of publication, the Tornado Cash DAO was offline reportedly following a discussion in which community members voted unanimously to add its governance layer as a signatory to its treasury’s multisig wallet, which manages a reported $21.6 million. It’s unclear what was responsible for the decentralized autonomous organization (DAO) going dark, but it followed a series of actions taken by different authorities and private entities in the wake of U.S. sanctions announced against the controversial mixer on Monday.

In the last four days, Circle froze more than 75,000 USD Coin (USDC) worth of funds on addresses listed by Treasury officials, dYdX said it had blocked some users’ accounts with funds linked to Tornado Cash, and Alchemy and Infura.io blocked remote procedure call requests to the crypto mixer. On Friday, authorities responsible for policing financial crimes in the Netherlands also announced the arrest of a developer allegedly involved in money laundering through Tornado Cash.

Actions by centralized firms extended beyond those against transactions with the crypto mixer, and into communications platforms. On Monday, Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account, and Discord users said the channel for the mixer also went dark on Friday. At the time of publication, Tornado Cash’s Telegram group was still active.

It’s unclear why seemingly neutral channels including Discord would be taken down in response to U.S. sanctions. However, according to a joint statement from the Federal Financial Institutions Examination Council and Office of Foreign Asset Control, prohibited transactions based on Tornado Cash’s inclusion to its Specially Designated National list could be interpreted to include “downloading a software patch from a sanctioned entity.” Penalties for failure to comply with sanctions could include hefty fines and prison time.

Related: Controversial mixer Tornado Cash open-sources UI code

“For the first time ever, the U.S. government has criminalized interacting with software,” said Omid Malekan, an adjunct professor at Columbia Business school who also teaches about cryptocurrency and blockchain, in a statement to Cointelegraph. “This is a big departure from their traditional decrees of sanctioning people, companies and governments. There is evidence the project in question has indeed been used by criminals/hackers to obfuscate their funds, but there are also many legitimate uses.”

Before the sanctions were imposed, Ethereum co-founder Vitalik Buterin said that he used Tornado Cash to donate funds to Ukraine, aiming for the financial privacy of the recipients in the middle of a war-torn country. On Tuesday, an anonymous individual also used the crypto mixer to send Ether (ETH) to many celebrities in a seeming attempt to challenge the gravity of the sanctions.

dYdX confirms blocking (and unblocking) some accounts flagged in Tornado Cash controversy

The platform said it has used compliance vendors to scan for and flag accounts potentially associated with illicit activities, including sanctions lists for many countries.

Cryptocurrency derivatives trading platform dYdX said it blocked some users’ accounts with funds linked to Tornado Cash, including mistakenly suspending some that never directly engaged with the controversial mixer.

In a Wednesday blog post, dYdX said it had “unbanned certain accounts” that the derivatives platform had blocked in response to the Office of Foreign Assets Control of the United States Treasury Department adding Tornado Cash to its list of Specially Designated Nationals, or SDNs. According to dYdX, its compliance provider flagged many accounts believed to be linked to Tornado Cash, which the platform subsequently blocked — despite the fact some had never dealt with the crypto mixer. The platform said it has used compliance vendors to scan for and flag accounts potentially associated with illicit activities, including sanctions lists for many countries.

“This sudden influx of flags affected many account holders that never directly engaged with Tornado Cash, and often such users do not realize the origin of the funds transferred to them during various transactions prior to interacting with our platform, but we must nevertheless maintain certain restrictions,” said dYdX.

According to dYdX, banning the users did not amount to seizing funds, which they said would always be available for withdrawals. However, the platform can place accounts in “close-only mode.”

Many crypto trading platforms have blocked access to Tornado Cash following the U.S. Treasury adding the controversial mixer to its sanctions list on Aug. 8. As an SDN, “U.S. persons are generally prohibited from dealing with them,” and firms and individuals listed have their assets blocked — this would include 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash.

Following the sanctions announcement, stablecoin issuer Circle froze more than 75,000 USDC worth of funds on addresses listed by Treasury officials. However, actions against individuals associated with the crypto mixer extend beyond centralized exchanges based in the United States. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account. On Tuesday, Web3 development platform Alchemy and Infura.io followed by blocking remote procedure call requests to the mixer.

Related: TORN price sinks 45% after U.S. Treasury sanctions Tornado Cash — Rebound ahead?

Some critics of the Treasury’s decision to add Tornado Cash to its list of SDNs have said the crypto mixer is a “neutral tool” that can be used by anyone, rather than a platform aiming to use it for illicit purposes. In a Tuesday statement, Lia Holland of tech advocacy group Fight for the Future called the Treasury’s actions “clumsy” by using sanctions against bad actors like North Korean hacking group Lazarus that also affected users with “legitimate reasons to seek anonymity in financial transactions.”

“Tornado.cash is code, and rather than identify those who were aiding and abetting criminals the Treasury simply sanctioned that code,” said Holland.

TORN price sinks 45% after U.S. Treasury sanctions Tornado Cash — Rebound ahead?

TORN is near a historically strong support range, eyeing a 75% rebound by September 2022.

Tornado Cash (TORN) has lost almost half its market valuation two days after being slapped with sanctions by the U.S. Treasury Department.

The department accused Tornado Cash, a crypto mixer platform, of laundering more than $7 billion in cryptocurrencies, including a stash of $455 million allegedly stolen by North Korea-based hackers.

Immediate reactions were followed by U.S.-based crypto companies, including Circle and Coinbase. In a controversial move, the popular crypto firms blocked the movements of their jointly-issued stablecoin USDC tied to Tornado Cash’s blacklisted smart contracts.

TORN price drops 45%

The news prompted traders to limit their exposure to TORN, Tornado Cash’s native token.

On the daily chart, TORN’s price has slipped by approximately 45% since the Justice Department’s notice about Tornado Cash, to reach $18.50 on Aug. 10. By contrast, the valuation of all the crypto assets had plunged merely 6% in the same timeframe.  

TORN/USD daily price chart. Source: TradingView

Interestingly, TORN’s selloff accompanied a spike in daily trading volumes, suggesting momentume.

TORN technicals suggest recovery

The downside move has pushed TORN price near a critical technical support.

Related: Anonymous user sends ETH from Tornado Cash to prominent figures following sanctions

TORN has been testing its $15–$18 range for a potential rebound due to its historical relevance as support. Notably, in January and June earlier this year, this level served as a springboard for TORN price to jump 275% and 100%, respectively.

TORN/USD three-day price chart. Source: TradingView

Therefore, a potential rebound move from the range could have TORN test $32.50 as its next upside target, which coincides with the 0.236 Fib line as shown above. In other words, a 75% recovery by September 2022

On the other hand, a breakdown below the support range sends TORN’s price to new record lows.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Anonymous user sends ETH from Tornado Cash to prominent figures following sanctions

It appears to be an ongoing prank to challenge the novel Tornado Cash sanctions.

On Tuesday, one day after the U.S. Treasury sanctioned cryptocurrency mixer Tornado Cash for its alleged role in cryptocurrency money laundering operations, intervals of 0.1 Ether (ETH) transactions began materializing from the smart contract to prominent figures such as Coinbase CEO Brian Armstrong and American television host Jimmy Fallon. It is not possible to trace the source of the transactions per Tornado Cash design, and as a result, either one individual or multiple individuals or entities could be involved in the operation.

Due to sanctions, it is illegal for any U.S. persons and entities to interact with Tornado Cash’s smart contract addresses, blockchain or business-wise. Penalties for willful noncompliance can range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment.

The consistency of the transactions indicate that the sender(s) may be starting a prank as to direct law enforcement attention to the recipient individuals. However, the Treasury sanctions require “willful” engagement with the blacklisted smart contract addresses as a precondition for possible criminal proceedings. Thus, it is unlikely that the receipt of tokens from Tornado Cash on a gratuitous basis, without any prior knowledge nor engagement, can constitute a violation of the sanctions.

The same day, Web3 development platforms Alchemy and Infura.io joined stablecoin issuer Circle and programming depository vault GitHub in blacklisting the sanctioned Tornado Cash addresses and barring access to its front-end application. Months prior, Tornado Cash attempted to address ongoing concerns that its platform was being used by malicious hackers to launder stolen crypto funds by disabling illicit wallets from accessing the application. However, its co-founder, Roman Semenov said at the time that the instrument only blocks access to the decentralized application, or DApp, interface and not the underlying smart contract.

Months prior, Tornado Cash attempted to address ongoing concerns that its platform was being used by malicious hackers to launder stolen crypto funds by disabling illicit wallets from accessing the application. However, its co-founder, Roman Semenov said at the time that the instrument only blocks access to the decentralized application, or DApp, interface and not the underlying smart contract.

Alchemy and Infura block access to Tornado Cash as Vitalik Buterin weighs in on debate

U.S. persons and entities must comply with the Treasury’s sanctions or face possible criminal consequences.

According to Twitter user @0xdev0, on Monday, Web3 development platform Alchemy and Infura.io blocked remote procedure call (RPC) requests to cryptocurrency mixer Tornado Cash, preventing users from accessing the applications. The day prior, the U.S. Treasury placed 44 smart contract addresses linked to Tornado Cash in the Specially Designated Nationals and Blocked Persons (SDN) list. U.S. persons and entities are prohibited from blockchain or business interactions with Tornado Cash under t sanctions, with the possibility of criminal liabilities for violations.

The move came after the U.S. Treasury alleged individuals and groups had used the privacy protocol to launder more than $7 billion worth of crypto since 2019, including the $455 million stolen by the North Korea-affiliated Lazarus Group. Almost immediately after the announcement, stablecoin issuer Circle froze USD Coin funds held within Tornado Cash’s smart contracts. Meanwhile, programming repository GitHub took down the project’s main page and blocked developer access.

Vitalik Buterin, the co-founder of Ethereum, claimed that he used Tornado Cash to donate to Ukraine. The intent, as told by Buterin, was to protect the financial privacy of the recipients so that their enemy, the Russian government, would not have full details of the transaction.

Others have also pointed out the mixer’s privacy applications, such as for an individual getting paid in crypto who doesn’t want an employer to see their financial details, or paying for a service in crypto who doesn’t want the service provider to see the past transactions from their wallet. On the other hand, the tool has, in part, acted as a hotspot for enabling anonymous hackers to launder stolen funds from protocol exploits particularly cross-chain bridges. More than $2 billion worth of funds has been stolen from such applications year to date.

Circle freezes blacklisted Tornado Cash smart contract addresses

Stablecoin issuers can blacklist interactions with the Tornado Cash DApp on the Ethereum smart contract level.

Crypto data aggregator Dune Analytics said that, on Monday, Circle, the issuer of the USD Coin (USDC) stablecoin, froze over 75,000 USDC worth of funds linked to the 44 Tornado Cash addresses sanctioned by the U.S. Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons (SDN) list. Tornado Cash is a decentralized application, or DApp, used to obfuscate the trail of previous cryptocurrency transactions on the Ethereum blockchain. 

All U.S. persons and entities are prohibited from interacting with the virtual currency mixer’s USDC and Ethereum smart contract addresses on the SDN list. Penalties for willful noncompliance can range from fines of $50,000 to $10,000,000 and 10 to 30 years imprisonment. An estimated $437 million worth of assets, consisting of stablecoins, Ethereum, and wrapped Bitcoin (WBTC), are currently held in Tornado Cash’s smart contract addresses. As a result, issuers are expected to take steps to prevent the transaction or redemption of such assets. 

Both the entities behind USDC and Tether can freeze their stablecoin transfers to and from Tornado Cash on the Ethereum smart contract level. Meanwhile, Palo Alto, California-based BitGo, would also, theoretically, need to restrict access to Tornado Cash to comply with such sanctions. One possible method is suspending the redemption of Tornado Cash-linked WBTC.

As told by pseudonymous DeFi educator BowTiedIguana, the new Tornado Cash sanctions apply across the board for U.S. individuals and entities. Simple interactions such as Gitcoin donations, working for the project, running or downloading its software, visiting its website, and depositing/withdrawing from smart contracts could be interpreted as violations. 


Tornado Cash co-founder reports being kicked off GitHub as industry reacts to sanctions

OFAC issued a statement implying prohibited transactions with Specially Designated Nationals could include “downloading a software patch from a sanctioned entity.”

Roman Semenov, one of the co-founders of Tornado Cash, has reported his account was suspended at the developer platform, GitHub, following the United States Treasury Department’s sanctioning of the privacy protocol.

In a Monday tweet, Semenov said that despite not being individually named as a Specially Designated National, or SDN, of Treasury’s Office of Foreign Asset Control, he seemed to be facing repercussions from the Treasury alleging Tornado Cash had laundered more than $7 billion worth of cryptocurrency. As SDNs, identified firms and individuals have their assets blocked and “U.S. persons are generally prohibited from dealing with them.”

Being identified as an SDN would seemingly include any contact for business purposes, which could extend to associations on GitHub. According to a joint statement from the Federal Financial Institutions Examination Council and Office of Foreign Asset Control, prohibited transactions could be interpreted to include “downloading a software patch from a sanctioned entity.”

Semenov called the move to suspend his account “a bit illogical.” However, U.S. residents have been effectively barred from using the crypto mixer, given its alleged failure “to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” according to Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence.

Some pro-crypto advocates have posited that the Treasury’s actions against Tornado Cash were the sanctioning of a “neutral tool” rather than the targeting of individuals responsible for using it for illicit means. Jake Chervinsky, head of policy at the Blockchain Association, claimed the U.S. Treasury Department’s decision may have “crosse[d] a line” between penalizing bad actors and those who dethe tools and technology they might use.

“It is not any specific bad actor who is being sanctioned, but instead it is all Americans who may wish to use this automated tool in order to protect their own privacy while transacting online who are having their liberty curtailed without the benefit of any due process,” said Jerry Brito, executive director of Coin Center.

A crypto mixer, Tornado Cash can be used to hide the trail of transactions for privacy reasons. The protocol was at the center of some major hacks and exploits in decentralized finance, including a $375-million attack on Wormhole in February and a $100-million hack on Horizon Bridge in June. The company announced in April that it was using oracle contracts from Chainalysis to block wallet addresses sanctioned by the Office of Foreign Assets Control following the Treasury Department alleging the North Korean hacking group Lazarus was behind a $600-million exploit of Ronin Bridge.

Cointelegraph reached out to Tornado Cash, but did not receive a response at the time of publication.

US Treasury sanctions USDC and ETH addresses connected to Tornado Cash

The protocol was at the center of some recent hacks and exploits in decentralized finance, including the alleged theft of $455 million by the North Korea-affiliated Lazarus Group.

The United States Treasury Department has added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of the Office of Foreign Asset Control, or OFAC.

In a Monday announcement, OFAC effectively barred U.S. residents from using Tornado Cash and placed 44 USD Coin (USDC) and Ether (ETH) addresses connected to the mixer on its list of Specially Designated Nationals. The department alleged that individuals and groups had used the mixer to launder more than $7 billion worth of crypto since 2019, including the $455 million stolen by the North Korea-affiliated Lazarus Group. The protocol was also at the center of some recent hacks and exploits in decentralized finance, including a $375-million attack on Wormhole in February and a $100-million hack on Horizon Bridge in June. 

“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”

In a tweet on Monday, Secretary of State Antony Blinken falsely claimed Tornado Cash was a “U.S.-sanctioned, DPRK state-sponsored hacking group, used by the DPRK to launder money.” He later deleted the post and tweeted the crypto mixer “has been used to launder money for a U.S.-sanctioned DPRK state-sponsored cyber hacking group.”

The Treasury Department took similar steps against cryptocurrency mixer Blender.io in May. According to OFAC, the mixer allegedly processed $20.5 million out of approximately $620 million stolen from the play-to-earn game Axie Infinity’s Ronin Bridge — roughly 173,600 ETH and 25.5 million USDC. Under OFAC sanctions, firms and individuals have their assets blocked and “U.S. persons are generally prohibited from dealing with them.”

Related: US Treasury Dept sanctions 3 Ethereum addresses allegedly linked to North Korea

Tornado Cash announced in July that it had fully open-sourced its user interface code as part of its goals toward complete decentralization and transparency. The mixer’s website included a compliance tool that allowed users to show the source of any transaction.