On August 8, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) sanctioned a virtual currency mixer, Tornado Cash, and listed it as a Specially Designated National (“SDN”). OFAC alleged that Tornado Cash was used to launder more than $7 billion worth of virtual currency since it was created in 2019. As a result, U.S. persons are prohibited from dealing with Tornado Cash and required to block all property of Tornado Cash– meaning any funds routed through Tornado Cash must be frozen. This aggressive and novel action has triggered a debate between law enforcement and privacy advocates that is playing out in both the courts and the press.
U.S. Sanctions Governing Virtual Currency
While people use virtual currency for many legitimate purposes, the U.S. government has identified clear national security concerns associated with their use. For example, the technology has been used to further a variety of illicit activities, including sanctions evasion, money laundering, terrorist financing, ransomware demands, and fraud. This activity has caught the attention of OFAC, the U.S. government office that implements and administers U.S. economic sanctions. OFAC’s purpose is “to prevent targets such as terrorists, international narcotics traffickers, weapons of mass destruction proliferators, and perpetrators of serious human rights abuse from accessing the U.S. financial system for purposes contrary to U.S. foreign policy and national security interests, and to change the behavior of such targets.” While sanctions typically target broad regions or countries, governments, or specific individuals and entities, OFAC has begun to adapt its typical sanctions playbook to govern the use of cryptocurrencies. Currently, sanctions involving virtual currency transactions or wallets derive from a number of executive orders implementing sanctions programs, including those related to North Korea, Iran, cybercrime, and Russia.
