How American Citizens May Legally Recover Crypto-Assets from Tornado Cash

How American Citizens May Legally Recover CryptoAssets from Tornado Cash

Robert Stone

Citizens and residents of the United States can apply for a license to retrieve funds locked in Tornado Cash, the Treasury Department announced Tuesday.

In its "frequently asked questions" (FAQs) document Tuesday, the Treasury Department's Office of Foreign Asset Control (OFAC), its sanctions watchdog, provides guidance on how companies and individuals can comply with sanctions against Tornado Cash, a privacy mixer for Ethereum that North Korean hackers blacklisted last month.

As a result of the sanctions, the crypto industry faced massive backlash, with concerns ranging from software sanctions to how Tornado Cash's smart wallets could be used to recover funds.

In the FAQs, Treasury didn't address the software concerns, but The Office of Foreign Assets Control ("OFAC") licenses could be requested. Crypto exchange Coinbase filed a lawsuit last week regarding locked funds. "Us citizens are encouraged to provide Tornado Cash with, at a minimum, all relevant information regarding these transactions, including the wallet addresses of the remitter and beneficiary, transaction hashes, the date and time of the transactions, as well as the amounts transferred. According to the FAQs, OFAC would allow such applications to proceed, provided no other sanctionable conduct was involved."

Aside from addressing the fact that people attempted to troll celebrities via Tornado Cash after the sanctions were announced, the FAQs also addressed the issue of small amounts of ether sent through Tornado Cash to celebrities. According to OFAC's FAQs, while U.S.

citizens are prohibited from conducting any transactions involving Tornado Cash if a U.S. citizen receives a small amount without their permission, they are not required to report the transaction immediately.

An OFAC announcement claimed that Lazarus Group, a North Korean hacking entity, had sent millions of dollars in cryptocurrency through Tornado Cash, alleging that 20% of its volume was associated with illicit activity.

According to a Treasury spokesperson via email, North Korea has increasingly used illicit activities, such as cybercrime, to raise funds for its weapons of mass destruction and ballistic missile programs." U.S. citizens must comply with these sanctions. "More broadly, the cryptocurrency industry must do its part to prevent illicit activity, whether nation-state or not, as that is what constitutes 'responsible innovation," said the spokesperson. "As part of this, we will ensure that adequate cybersecurity measures are implemented, knowyour-customer measures are implemented, sanctions are complied with, and anti-money laundering obligations are met. The Treasury on these issues looks forward to continuing dialogue with the cryptocurrency industry on these topics."

"Us citizens are encouraged to provide Tornado Cash with, at a minimum, all relevant information regarding these transactions, including the wallet addresses of the remitter and beneficiary, transaction hashes, the date and time of the transactions, as well as the amounts transferred. According to the FAQs, OFAC would allow such applications to proceed, provided no other sanctionable conduct was involved.