On Tuesday (November 8, 2022), the Office of Foreign Asset Control (OFAC) announced the redesignation of Tornado Cash. The action also designates two individuals involved in the transportation and procurement activities on behalf of the Democratic People’s Republic of Korea (DPRK).
OFAC updates Tornado Cash sanction
On November 8, 2022, the Office of Foreign Asset Control (OFAC), a US Treasury Department, announced amendments to the sanctions imposed on Tornado Cash.
Tornado Cash is a well-known crypto mixer. OFAC initially sanctioned and added Tornado Cash to the Specially Designated Nationals and Blocked Persons list (SDN list) in August 2022 for having facilitated the laundering of over $7 billion in cryptocurrencies since 2019. On Tuesday, OFAC suspended Tornado Cash’s sanction to redesignate again just after under Executive Order 13722 and 13694, as amended. This sanction update considers further information in light of Tornado Cash’s support of DPRK activities. OFAC’s press release details that the mixer “obfuscated the movement of over $455 million stolen in March 2022 by the OFAC-designated, DPRK-controlled Lazarus Group in the largest known virtual currency heist to date.” Tornado Cash sanction also includes several crypto addresses as identifying data in the SDN list.
You can find more information regarding Tornado Cash sanctions in the FAQ provided by OFAC.
What is a crypto mixer?
A crypto mixer, or mixing service, is a decentralized service on blockchains, allowing users to transact their crypto assets with more privacy by putting together crypto funds from different users to obfuscate the trail of funds.
More specifically, users deposit a specific amount of crypto assets into the mixing service. The platform then mixes the assets with others. After that, users can withdraw the amount deposited, which is not traceable. In return, mixers take a percentage of transaction fees.
There are many mixing services available to enhance crypto transaction privacy. Tornado Cash is one of the most well-known and most used cryptocurrency mixing services.
Tornado Cash was the second crypto mixer sanctioned by OFAC, following Bitblender.
What does it imply for crypto sanction compliance?
Following OFAC’s action, Tornado Cash remains a sanctioned entity listed on the SDN list. OFAC states, “all property and interests in property of the individuals and entities designated today that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” Also, OFAC prohibits all dealings by US persons or within the US (including transactions transiting the US) that involve any property or interests in property of blocked or designated persons.
Moreover, persons that transact with individuals or entities subject to OFAC sanctions can face a designation from OFAC. Foreign financial institutions that knowingly process significant transactions and financial services to an individual or entity sanctioned by this action could also be subject to U.S. correspondent or payable-through account sanctions.
OFAc provides further information regarding crypto sanction compliance in its guidance and FAQ.
Crypto sanction screening with blockchain analytics
Bitblender and Tornado Cash are not the only crypto-related platforms on OFAC’s SDN list. OFAC previously sanctioned crypto platforms, like the exchange Garantex and the dark web market Hydra. OFAC also adds crypto addresses as identifying information when it sanctions individuals and groups. For example, OFAC included 8 Ethereum addresses as part of the designation of the Lazarus group.
Compliance officers should ensure they don’t transact with sanctioned crypto addresses from OFAC-sanctioned platforms and individuals. Scorechain blockchain helps its customers in their sanction compliance process. The software database is automatically updated to list crypto addresses added to the SDN list, which are red-flagged and assigned a low risk-AML score.
Users can quickly identify if a crypto address is related to an OFAC sanction and if a crypto transaction is sent to or from a sanctioned entity or individual.
Besides, to further facilitate their sanction screening process with:
Configurable indicators displaying automatic ref flags in case of links with specific activities;
Detailed analyses of incoming and outgoing crypto funds with involved entities;
The Investigation Tool to check for links with OFAC-sanctioned elements.
Curious to see how Scorechain can help you in your crypto compliance journey? Don’t hesitate to request a demo of the solution.
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 45 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, and Tron with TRC10 and TRC20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.