The Treasury Department on Monday banned Americans from using the cryptocurrency platform Tornado Cash, saying the service helped criminals launder more than $7 billion in virtual currency.
The crackdown was the latest effort by the US government to clamp down on 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 blacklisted Tornado Cash as a sanctioned entity, making it illegal for Americans to send or receive money using the service.
“Despite public assurances, Tornado Cash has repeatedly failed to implement effective controls designed to prevent it from laundering funds for malicious cyber actors,” said Brian Nelson, Under Secretary for Terrorism and Financial Intelligence.
Criminals have long used virtual currencies for anonymous transactions, exchanging digital coins for drugs or other illegal goods. But crypto’s anonymity doesn’t guarantee absolute 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 such tracking difficult. These crypto “mixers” receive multiple streams of transactions, then combine them to reveal the origin and destination of the funds. According to the Treasury Department, Tornado Cash has been used to launder more than $455 million in cryptocurrency stolen this year by North Korean-backed hackers called the Lazarus Group.
Messages on Tornado Cash’s official Twitter account were not returned. Roman Semenov, one of the three founders of the company, did not respond to a request for comment.
Since its launch in 2019, Tornado Cash has gained a lot of popularity as blockchain records show that hackers have been using it to transfer stolen cryptocurrencies. In interviews, Mr. Semenov defended the service, saying the software protects the privacy of legitimate crypto traders who might be targeted by kidnappers or thieves.
In a statement, crypto advocacy group Coin Center criticized the Treasury Department’s announcement, arguing that Tornado Cash was a neutral platform “that can be used for good or bad like any other technology.”
“It is not any particular bad actor who is subject to sanctions,” the statement said. “Instead, all Americans can use this automated tool to protect their privacy when they transact online.”
As the market for digital currencies has grown, the federal government has increasingly cracked down on lightly regulated crypto companies. Tether, a stablecoin company, was fined by the Commodity Futures Trading Commission last year for misrepresenting its reserves, and the Justice Department last month charged a former employee of Coinbase, the largest US crypto exchange, with insider trading.
Cryptocurrency exchange Kraken is also under investigation by the Treasury Department for possible violations of US sanctions.