Cryptocurrency platform Tether is not giving in but instead holding firm on its intention to support Tornado Cash—which is first and foremost a virtual currency mixer—despite recent U.S. sanctions on Tornado Cash. Instead of freezing accounts, Tether is keeping Tornado Cash addresses open unless and until it receives instructions to the contrary from federal law enforcement agencies. In effect, Tether—the issuer of the world’s largest stablecoin—is signaling that the crypto industry should resist OFAC’s sanctions on Tornado Cash and support the mixer.
OFAC’s Sanctions on Tornado Cash
Earlier this year, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) started all the commotion by slapping sanctions on Tornado Cash over allegations that it “failed to impose effective controls” in order “stop the laundering of proceeds from cybercrime.”
Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian E. Nelson determined, in relevant part, that Tornado Cash is “a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States.” He continued,
Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose adequate controls designed to stop it from laundering funds for malicious cyber actors regularly and without basic measures to address its risks. Treasury will continue aggressively pursuing actions against mixers that launder virtual currency for criminals and those who assist them.
The Department of the Treasury’s website warns the public that “[v]irtual currency mixers that assist criminals are a threat to U.S. national security.”
This comes only three months after OFAC-sanctioned virtual currency mixer, Blender.io, and stands for the proposition that anyone thinking about launching a crypto mixer will be heavily scrutinized and ultimately sanctioned or shut down by the federal government.
Tether’s Move to Resist U.S. Sanctions on Tornado Cash
Tether has not blacklisted Tornado Cash accounts and has undeniably stated that it will not do so. From a legal perspective, it is not entirely clear that Tether is obligated to follow the Treasury’s sanctions. On the one hand, it is registered with the Financial Crimes Enforcement Network (“FinCEN”)—an organization that combats financial crime. On the other hand, it does not operate in the United States.
Overall, Tether’s move sends a loud and powerful signal to crypto enthusiasts and the U.S. government that the crypto industry is supposed to be decentralized—meaning it is supposed to be unregulated and unsupervised by central authorities such as banks and governments. The very nature of sanctions itself is a contradiction of all things decentralized. In other words, Tether is fighting to have the voices of crypto supporters heard while reinvigorating “the early magic of Bitcoin as a radical break from a corrupt and convoluted financial status quo.”
How Others are Reacting to Tether´s Move
Tether’s move in opposing U.S. sanctions by not blocking Tornado Cash addresses has stirred up a heated controversy. The U.S. government cites multiple heists involving Tornado Cash, including the $455 million stolen by the Lazarus Group—a Democratic People’s Republic of Korea (“DPRK”) hacking group—which subsequently led to sanctions by the United States back in 2019.
Others are beyond furious. The Electronic Frontier Foundation (“EFF”)—a group focused on digital rights activism—said it was “deeply concerned” about the implications of the sanctions. The EFF added,
Code has long been recognized as speech, so there are clear First Amendment implications whenever the government inhibits the publication of computer code on a public website.
Coin Center, a non-profit advocacy group, also declared that it may challenge the Tornado Cash ban in court, arguing that the prohibition “potentially violates constitutional rights to due process and free speech.” Lastly, Kraken CEO Jesse Powell calls the sanctions “unconstitutional.”
Conclusion
The Tornado Cash sanctions were justified to combat international money laundering and financial crimes. However, crypto platform Tether’s stark opposition to the sanctions by keeping its Tornado Cash addresses open is making waves. While those in the crypto industry must choose between following the law and fostering financial innovation, Tornado Cash users are the ones suffering the consequences. Whether, how, and to what extent the U.S. government takes action against Tether remains to be seen.
