Banning Tornado Cash May Not Stop Bad Actors, But Could Hurt Their Efforts, Says Former DEA Agent


JAccording to retired Drug Enforcement Agency (DEA) agent William Callahan, the US Treasury Department’s approval of the Tornado Cash mixer service is a wake-up call that the United States is taking mixers seriously.

Callahan, who now works as director of government and strategic affairs at software firm Blockchain Intelligence Group, told CoinDesk TV that while the ban may not completely stop crypto money laundering -currency, it sends a bigger message and at least “will put a big dent in their operations”.

On Monday, the mixer was added to the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list for allegedly aiding and abetting the laundering of more than $7 billion worth of cryptocurrencies.

In a statement, the Treasury Department said the mixer was used by North Korean hacking group Lazarus Group to steal $455 million through multiple exploits, including $7.8 million laundered through the Nomad crypto bridge. last week.

Under the department’s new designation, all Americans are banned from sending or receiving money on the platform and could face criminal penalties for violating the rules.

Callahan suggested the move, while harsh, represents a new regime for US regulators tackling financial crime. Armed with new analytical tools, law enforcement is better able to track bad actors and beat them at their own game, he said.

The ban, however, could be difficult for officials to fully implement, Callahan said.

“The bad guys have an advantage over law enforcement,” he said, including “the money to come up with different techniques” to evade surveillance systems.

Tornado Cash, which is built on the Ethereum blockchain, allows users to accept token deposits from one address and make withdrawals using a different address. In effect, this means that the platform is mixing coins, making it more difficult to track transactions used for criminal activity.

The noncustodial mixer, like crypto, is built around pseudo-anonymity, which also poses challenges for officials. And because the platform is open source, whether the code will be duplicated at different Ethereum addresses remains unclear.

Callahan pointed out that the mixer is a “threat to national security.” And while this may not be the first time U.S. officials have implemented such measures to “affect financial flows,” this may be a time for platforms to slow down and review their current transaction processes. .

Like many others, Callahan noted that the blanket ban affects platform users who rely on the protocol for legitimate reasons. This includes people around the world under autocratic regimes or everyday crypto users who choose not to reveal their transaction history.

Elliptic, a blockchain analytics firm, found that only $1.5 billion worth of illicit-related crypto was passing through the platform – not the $7 billion figure cited by the US government. .

Callahan acknowledges that while there are places in the world where users need privacy, in the United States right now, “the government has a responsibility to take action when they see that it could pose a threat. for national security”.

Read more: US Government Amplifies Inevitable Conflict With Crypto Privacy In Blacklisting Tornado Cash

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