OFAC Sanctions Second Virtual Currency Mixer – Export Controls and Trade and Investment Sanctions

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On August 8, 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) announced its second designation of a virtual currency mixer – Tornado Cash (“Tornado”) – which has been used to launder billions of dollars. value of virtual currency, including funds stolen by a North Korean state-sponsored hacking group.1 Just a few months ago, OFAC released its first designation of a virtual currency blender – Blender.io – for similar activity.2 Following OFAC’s designation, all property and interests in the property of Tornado and its 50% or more owned subsidiaries are blocked and must be reported to OFAC and U.S. Persons3 are generally prohibited from directly or indirectly transacting or dealing with them absent a license. This designation (1) reflects the Treasury Department’s increased attention and scrutiny of digital asset firms and related service providers, (2) indicates that mixers should be considered high risk by currency firms virtual, and (3) demonstrates the importance of an appropriately risk-based anti-money laundering (AML) controls and sanctions.

Virtual currency mixers anonymize cryptocurrency transactions by mixing them to hide the source and destination of the currency.4 Since a critical part of complying with AML and sanctions regulations is knowing your customer (KYC), mixers present a clear AML and sanctions compliance risk. Also, if you are doing business in the United States, mixers and cups are likely Money Services Businesses (MSBs) that must register with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of Treasury. States and maintain an AML program and implement risks appropriately. AML based checks. At this point, in October 2020, FinCEN imposed a $60 million fine, the first of its kind, against the founder and operator of two virtual currency mixers for failing to register them as than ESM and for willfully violating their anti-money laundering requirements under bank secrecy. Law.5 OFAC’s subsequent designations of Tornado and Blender.io blenders reflect Treasury’s focus on digital asset companies and related service providers, as Treasury promises to “continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who help them”.6

Virtual currency companies (among others) must have a risk-based AML and sanctions compliance program that takes into account the unique risks posed by their customers, geographic areas of operation, services, etc. Importantly, OFAC notes that “mixers should generally be considered high risk by virtual currency companies, who should only process transactions if they have appropriate controls in place to prevent mixers from being used. to launder illicit proceeds”.seven Anti-money laundering and sanctions regulations, requirements and regulatory expectations are complex, but failures in these areas can lead to significant issues, including but not limited to criminal and civil liability, designation of penalties, and reputational and practical issues.

Footnotes

1. United States Treasury Department, US Treasury Sanctions Notorious Viral Currency Mixer Tornado Cash (August 8, 2022), https://home.treasury.gov/news/press-releases/jy0916.

2. United States Treasury Department, US Treasury Issues First-Ever Sanctions on Virtual Currency Mixer, Targets DPRK Cyber ​​Threats (6 May 2022), https://home.treasury.gov/news/press-releases/jy0768.

3. “United States Person” means any citizen of the United States, permanent resident alien, entity organized under the laws of the United States or any jurisdiction in the United States (including foreign branches), or any person in the USA. SeeEO 13694 § 6(c).

4.Robert Stevens, Bitcoin mixers: how do they work and why are they usedCoinDesk (March 8, 2022) https://www.coindesk.com/learn/bitcoin-mixers-how-do-they-work-and-why-are-they-used/.

5.
See Winston’s previous briefing on this here: https://www.winston.com/en/global-trade-and-foreign-policy-insights/fincen-issues-first-of-its-kind-dollar60-million- penalty-against-operator-of-bitcoin-mixers.html.

6. See above footnote 1.

seven. See id.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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