The Treasury Department on Monday banned Americans from using the cryptocurrency platform Tornado Cash, because the service has helped criminals launder more than $7 billion in virtual currencies.
The crackdown was the latest effort by the US government to curb the crypto industry as lawmakers and regulators grow increasingly concerned about the volatility of virtual currencies and their role in facilitating hacking and other crimes. Calling the platform a “threat to US national security,” the Treasury Department placed Tornado Cash on an entity blacklist, making it illegal for Americans to send or receive money using the service.
“Despite public assurances, Tornado Cash has repeatedly failed to put in place effective controls to prevent money laundering for malicious cyber actors,” Brian Nelson, the secretary of state for terrorism and financial intelligence, said in a statement.
Criminals have long used virtual currencies to conduct anonymous transactions and exchange digital coins for drugs or other illegal commodities. But crypto’s anonymity doesn’t provide general security: crypto transactions are recorded in publicly visible ledgers called blockchains, which allow law enforcement to track the money.
Platforms like Tornado Cash are designed to make that kind of tracking more difficult. These crypto “mixers” receive multiple transaction flows and then combine them to obscure the origin and destination of the funds. According to the Treasury Department, Tornado Cash was used to launder more than $455 million worth of crypto stolen this year by North Korean-backed hackers, the Lazarus Group.
A message to Tornado Cash’s official Twitter account did not return. Roman Semenov, one of the company’s three founders, did not respond to a request for comment.
Since its launch in 2019, Tornado Cash has become best known as blockchain records show that hackers have used it to move stolen cryptocurrencies. In interviews, Mr. Semenov has defended the service, saying that the software protects the privacy of legitimate crypto traders who could be the target of kidnappers or thieves.
In a statement, crypto advocacy group Coin Center criticized the Treasury Department’s announcement, arguing that Tornado Cash is a neutral platform “that can be used for good or bad like any other technology.”
“It is not a specific bad actor that is sanctioned,” the statement said. “Instead, it’s all Americans who may want to use this automated tool to protect their own privacy during online transactions.”
As the digital currency market has grown, the federal government has been cracking down on crypto companies, which are lightly regulated. Tether, a stablecoin company, was fined by the Commodity Futures Trading Commission last year for misrepresenting its reserves, while the Justice Department last month filed an insider trading suit against a former employee of Coinbase, the largest U.S. crypto exchange.
The cryptocurrency exchange Kraken is also under investigation by the Treasury Department for possible violations of US sanctions.
