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A group of Democratic lawmakers in the United States has urged the Treasury Department to clarify why Tornado Cash, a cryptocurrency mixing service, continues its operations despite being sanctioned.
Concerns Over Tornado Cash Operations
Tornado Cash was placed on the sanctions list in August 2022 due to its alleged involvement in laundering over $7 billion in illicit funds, including money linked to North Korean hacking groups. In a letter dated November 14, 2024, a coalition of lawmakers led by vocal crypto critic Brad Sherman expressed their unease regarding the ongoing functionality of Tornado Cash following the sanctions imposed against it.
“We write to request additional information about the ongoing use of the cryptocurrency mixing service Tornado Cash after sanctions were imposed,” the lawmakers stated, highlighting their commitment to holding the service accountable.
Accessibility and Increased Usage
The letter brought attention to the fact that Tornado Cash remains accessible via decentralized smart contracts, complicating enforcement measures. Lawmakers noted a dramatic increase in the use of crypto mixers, with Tornado Cash processing $1.8 billion in deposits in the first half of 2024 alone. This figure represents a staggering 45% rise compared to all of 2023, prompting concerns.
“This problem shows zero signs of going away anytime soon,” the lawmakers warned, indicating the persistence of the issue.
Utilization by Malicious Actors
The correspondence from lawmakers outlined multiple instances of Tornado Cash being utilized by rogue states, terrorist organizations, and cybercriminals. They sought an explanation from the Treasury regarding its actions to mitigate these activities. Unlike centralized mixers like Blender and Sinbad, which halted operations following sanctions, Tornado Cash’s decentralized nature allows it to keep functioning, which presents unique challenges for enforcement.
Questions for the Treasury
In their letter, the lawmakers posed several critical questions to the Treasury Department. They inquired about estimates of illicit activities associated with Tornado Cash since the imposition of sanctions, details about enforcement actions against illicit users and exchanges, as well as statistics pertaining to suspicious transactions.
They also asked if the Treasury was considering secondary sanctions against non-U.S. entities that engage with mixed funds. Furthermore, the letter pressed for updates on regulatory measures, specifically regarding a proposed rule from the Financial Crimes Enforcement Network (FinCEN) that would require financial institutions to monitor transactions involving mixers.
Urgency and Legal Scrutiny
The lawmakers underscored the urgency of their request by demanding a response and a staff briefing by December 2, 2024. Meanwhile, Tornado Cash itself is under legal scrutiny. Privacy advocates are contesting the sanctions, arguing that decentralized platforms should not be classified as entities under U.S. law. Additionally, Tornado Cash co-founder Roman Storm is awaiting trial for money laundering and sanctions violations, which is now scheduled for April 2025.
Shifting Regulatory Landscape
As the political landscape evolves, U.S. crypto owners may anticipate shifts in regulation with the forthcoming administration of Republican President-elect Donald Trump. Current and former senior government officials at a legal conference in New York indicated that while financial fraud cases would continue to be pursued, the focus of the Justice Department would likely transition towards immigration enforcement, which was a key campaign promise of Trump.
Scott Hartman, co-chief of the securities and commodities task force at the U.S. Attorney’s Office in Manhattan, disclosed that fewer resources would be directed towards enforcing cryptocurrency-related crimes. Additionally, the SEC has been experiencing mounting criticism for its “regulation-by-enforcement” approach, with voices from the industry calling for a clearer regulatory framework for cryptocurrencies instead of reactive legal actions against significant players in the sector.
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