No KYC, No AML, No Service: Mixing Services Run Afoul Of US Treasury

The raison d’être of mixing services or tumblers have always been perplexing to law abiding citizens throughout the world. Their most well-known purpose is to undo one of the blockchain’s most important properties: transparency.

By taking stolen blockchain assets such as Ether or Bitcoin that may have been drained from unsuspecting users’ wallets, thieves can use a mixing service to turn cryptocurrency into essentially new, almost untraceable Ether or Bitcoin that may be used without fear of being tracked. Or put another way, KYC AML connections to the original assets have been erased.

Today, the US Treasury announced it has placed the most well-known mixer, Tornado Cash, as well as 44 associated crypto wallet addresses on a financial sanctions list known as OFAC’s SDN (Specially Designated Nationals) list. The Office of Foreign Assets Control (“OFAC”) is part of the US Treasury and “administers and enforces economic and trade sanctions based on US foreign policy and national security goals…”

This is the second mixing service to be sanctioned after in May and is responsible for funneling funds from seven major hacks according to the Department. From the US Treasury’s press release:

“Tornado Cash (…) has been used to launder more than $7 billion worth of virtual currency since its creation in 2019. This includes over $455 million stolen by the Lazarus Group, a Democratic People’s Republic of Korea (DPRK) state-sponsored hacking group that was sanctioned by the U.S. in 2019, in the largest known virtual currency heist to date. Tornado Cash was subsequently used to launder more than $96 million of malicious cyber actors’ funds derived from the June 24, 2022 Harmony Bridge Heist, and at least $7.8 million from the August 2, 2022 Nomad Heist.”

The Block notes that the difference with Tornado Cash versus is that it is a decentralized finance or DeFi protocol and, presumably, there is no centralized organization to go after. But, there are Tornado Cash developers somewhere – whether the U.S. would prosecute them – let alone find them – remains to be seen. And then, how to ringfence if not stop a protocol that exists on its own is a challenge which is why the mixing service’s wallets are identified for monitoring.

Due to the OFAC designation, Tornado Cash would appear to be off-limits to US citizens as the sanctions outline:

“As a result of today’s action, all property and interests in property of the entity above, Tornado Cash, that is in the United States or in the possession or control of U.S. persons is blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.”

Two other issues here are the potentially growing involvement of state actors, especially North Korea, as well as the belief that terrorists can use mixing services to fund their operations by going outside of Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regulations. Nevertheless, the blockchain’s unique transparency would appear to present opportunity to law enforcement than traditional financial methods such as cash.


    • September 13, 2022 – The Treasury Department published an FAQ on its recent OFAC guidance for users affected by the sanctioning of wallets tied to Tornado Cash. Read it.
    • September 13 – Blockchain Association Head of Policy Jake Chervinsky says the FAQ is a start, but more is needed. Read the tweet thread.
    • September 16 – Tech publication Protocol summarizes the crypto industry’s reaction to the Tornado Cash sanctions. Read it.