WASHINGTON (AP) — The Treasury Department faces pushback from the cryptocurrency industry over sanctions imposed on a company accused of…
WASHINGTON (AP) — The Treasury Department faces backlash against the cryptocurrency industry over sanctions imposed on a company accused of helping to launder billions of dollars — with some funds going to North Korean hackers.
Earlier this month, the Treasury Department imposed sanctions on virtual currency mixing company Tornado Cash, which has reportedly helped launder more than $7 billion worth of virtual currencies since its founding in 2019.
Mixing services combine various digital assets, which may include funds obtained illegally and legitimately, to keep the origin of the funds secret, including money that has been stolen.
In the weeks after the sanctions were announced, crypto firms, lobbyists and at least one lawmaker came to the firm’s defense, saying the sanctions open the door to restricting Americans’ use of privacy software.
Coin Center, a not-for-profit crypto lawyer, says the Treasury enforcement department has “exceeded its legal authority” through its sanctions, which “potentially violates constitutional rights to a fair trial and freedom of expression.”
A cryptocurrency company, Tether, has said it will not freeze its accounts linked to Tornado Cash and plans to keep them open. and Rep. Tom Emmer (R-Minn.), who has received at least $50,000 in contributions from the Blockchain Association this year, wrote this week to Treasury Secretary Janet Yellen explaining the rationale for sanctioning Tornado Cash, saying the sanctions ” not affect only our national security, but the right to privacy of every American citizen.”
He told The Associated Press that the sanctions punish Americans who use the company’s software for legitimate purposes. “My government has nothing to do with penalizing my ability to use software that protects my anonymity, especially if I use it for legitimate purposes,” he said.
The company’s defense comes as Tornado Cash developer Alexey Pertsev was arrested by Dutch authorities in early August, days after US sanctions were imposed, for allegedly enabling money laundering.
Treasury’s Office of Foreign Assets Control says Tornado Cash’s systems were used, among other things, to launder more than $96 million, stemming from the June theft of the Harmony blockchain bridge and the raid on crypto firm August Nomad.
A Treasury Department spokesman said the agency is focused on disrupting criminal behavior and will use its sanctions authorities to protect the U.S. financial system from illegal activities such as cyber theft, money laundering and weapons proliferation financing.
Kristin Smith, executive director of the Blockchain Association, said the sanctions will affect law-abiding users of crypto mixing technology.
“If you are paid in cryptocurrency, transactions on most blockchains are transparent,” she said, adding that mixers are used by those who don’t want their transactions visible in a ledger.
“I think we need to have a conversation about privacy and strengthen law enforcement without undermining people’s ability to conduct private transactions,” Smith said.
This is not the first set of sanctions against a company mixing digital assets.
In May, the US announced sanctions against North Korean digital currency mixing company Blender.io, accused of helping Lazarus Group, the sanctioned North Korean cyber-hacking group, carry out a $600 digital currency heist. million in March.
Since the Tornado Cash sanctions, crypto experts have speculated whether expected regulations would lead to a ban on mixing services.
The Biden administration issued an executive order on digital assets in March calling in part for industry regulation.
“This may be the end,” Smith said, “but we won’t know until we see the rules.”
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