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Second Mixer, TORNADO CASH, Added to OFAC Sanction List

On August 8, 2022, the United States Office of Foreign Assets Control (OFAC) updated its Specially Designated Nationals (SDN) List adding TORNADO CASH (a.k.a. TORNADO CASH CLASSIC; a.k.a. TORNADO CASH NOVA) along with 44 addresses from the Ethereum blockchain. This was an example of OFAC implementing sanctions on the person/entity level.

OFAC, which sits within the U.S. Department of the Treasury, administers and enforces economic and trade sanctions, based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.  OFAC administers a number of different sanctions programs, ranging from comprehensive or selective, and can target specific jurisdictions, individuals, companies, and governments.

What does this mean?

In simple terms, this means that U.S. persons, entities, and/or businesses must immediately stop transacting with the “Tornado” entities identified on the SDN List, or any related property/interests owned more than 50% by these listed entities and must block the 44 blockchain addresses.  If any US persons, entities, and/or businesses engage in business in any way with these sanctioned parties and/or addresses, they will risk enforcement, potentially resulting in civil and criminal penalties. If any property or interest of these listed entities is in control at or after the time of listing by the US or a US person, they must be reported to OFAC.

Why is this important?

It’s been an active 2022 for OFAC, as they have ramped up virtual asset related SDN listings.  This is the second mixer to be added to the SDN list by OFAC, with the last one occurring on May 6, 2022, with the designation of Mixers such as Tornado Cash offer to scramble potentially identifiable cryptocurrency funds with others. While they may have legitimate uses for promoting privacy, with the intention being to confuse the trail back to the fund’s original source, mixers may also be used for money laundering and sanctions evasion.

Bad actors have historically utilized Tornado Cash to mix funds coming from numerous frauds, hacks, and thefts, including most notably, the Ronin/Axie Infinity event.

How can blockchain analytic tools help?

CipherTrace InspectorTM and other similar blockchain analytic tools, allow financial investigators and analysts to visually trace transactions on the blockchain to follow cryptocurrencies, spot cryptocurrency threats, identify risky or illicit activities. If it is determined that an address has been added to a sanctioned list by OFAC, this is attributed in blockchain analytic tools. Further, if it is determined that a sanctioned individual or entity has control of a wallet, this can be attributed in blockchain analytic tools. In both cases, users will be able to trace activity to/from/through the sanctioned addresses giving the funds a visibility that traditional currencies may not be able to offer OFAC or other agencies.

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