US sanctions virtual currency mixer Tornado Cash used by North Korea for money laundering

In a major action, the US Treasury has sanctioned Tornado Cash, a virtual currency mixer, after reports of money laundering of more than $7 billion worth of virtual currency since its creation in 2019. According to the Treasury, the sanctioned amount includes over $455 million stolen by the Lazarus Group, North Korea's (DPRK) state-sponsored hacking group that was sanctioned by the US in 2019. It was believed to be the largest known virtual currency heist to date. Subsequently, the Treasury noted that Tornado Cash was used to launder more than $96 million of malicious cyber actors’ funds derived from the June 24, Harmony Bridge Heist, and at least $7.8 million from the August 2 "Nomad Heist".   

Meanwhile, Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E Nelson, in a statement, underscored Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors regularly. "Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States," said Nelson, adding the Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.

Further, he noted that most virtual currency activity is licit, it can be used for illicit activity, including sanctions evasion through mixers, peer-to-peer exchangers, darknet markets, and exchanges. Earlier in May this year, the North Korean government accused the Biden administration of orchestrating an "anti-DPRK racket" by distorting the scale of the country’s cyber operations. This comes after the US sanctioned a cryptocurrency exchange that aided Pyongyang in skimming millions of dollars.

What is Tornado Cash and Why the US has taken action against it?

Tornado Cash is a virtual currency mixer that operates on the Ethereum blockchain and indiscriminately facilitates anonymous transactions by obfuscating their origin, destination, and counterparties, with no attempt to determine their origin. Tornado receives a variety of transactions and mixes them before transmitting them to their recipients. While the purported purpose is to increase privacy, mixers like Tornado are commonly used by illicit actors to launder funds, especially those stolen during significant heists. According to the US Treasury, criminals have increased their use of anonymity-enhancing technologies, including mixers, to help hide the movement or origin of funds.   

Image: AP