The crypto community was rocked by yet another unfortunate news, this time with the arrest of the alleged developer of the notorious crypto-mixing platform Tornado Cash. Dutch authorities have arrested a 29-year-old developer in Amsterdam and hinted that more arrests might follow after the incident.
Tornado Cash is an Ethereum-based crypto mixing service that can jumble crypto transactions’ sensitive details such as origin, destination, and counterparties to prevent anyone from tracing them. Essentially, it allows users to send Ethereum and other transactions anonymously. While it seems harmless, web3 bad actors have used this platform and other privacy-enhancing tools to conduct their illicit activities.
The U.S Department of Treasury has also acknowledged the perils of these crypto mixing services, including being used for financial sanction evasions, dark web markets, and ransomware attacks, activities that can pose potential threats to national security. Furthermore, the Treasury considers crypto mixing services equivalent to gambling websites when it comes to money laundering risk.
Multibillion-Dollars Laundered
Authorities allege that the arrested developer has played a major role in concealing the illegal activities within the platform. The incident was the newest blow to the service after the U.S treasury sanctioned it.
Security firms have confirmed that hackers have used the platform to launder funds stolen from Ronin Bridge and Harmony Bridge cyber attacks, which netted $600 million and $100 million, respectively.
Analytics platform Elliptic has also discovered another $1.5 billion worth of crypto loots laundered within the platform. But what’s more surprising is the U.S Treasury’s revelation that Tornado Cash may have already laundered over $7 billion worth of cryptocurrencies since its establishment in 2019.
While Tornado Cash has continuously assured to uphold its responsibilities, the service’s repeated involvements with big-time money laundering transactions say otherwise. The astounding amount of laundered money discovered in its system sends a hint of gross negligence and tolerance among the platform’s founders and developers.
The authorities’ recent actions over this incident can potentially trigger a series of legal blitzes, which may soon evolve into a crypto mixer witch hunt.
The Government Might Lose the Battle at the Tech Level
It appears that the U.S. Treasury’s sanctions against Tornado Cash may not be absolute after all. The embattled crypto mixing service was still able to process more than $2 million worth of transactions, despite all the legal limitations thrown at it.
While the Treasury’s sanctions have successfully blocked key assets and aspects of the platform, the ability to stop Tornado Cash’s code might be next to impossible. In other words, the Department may lose the battle at a technological level.
The most challenging part of dismantling Tornado Cash is its very nature. It is a smart contract firmly attached to Ethereum, a decentralized giant powered by thousands of nodes and multiple layers of cryptography. Not even a Hercules or a Hulk can rip Tornado Cash apart from Ethereum.
To sum it up, sanctions can only do so much, and the governments’ legal cards may not be enough to shut down the entire platform and stop it once and for all.
Blender: The First Crypto Mixer To Be Sanctioned by the U.S. Government
Tornado Cash wasn’t the first crypto mixing platform to be sanctioned by the U.S. government. Last May 2022, the Office of Foreign Asset Control (OFAC), the financial and intelligence arm of the U.S. Treasury, sanctioned Blender for its involvement in a money laundering incident.
Authorities have discovered that Blender was used by the notorious Lazarus Group, which was believed to be a state-sponsored entity of North Korea. The officials revealed that the group happen to be responsible for the $600 million Ronin Bridge hacking attack, which laundered a chunk worth $20.5 million in the Blender platform.
With potential national security risks through North Korea’s involvement, the American government immediately blocked all Blender platform’s U.S. properties and U.S.-linked transactions. This sanction can help reveal the virtual mixing service’s audit trails and prevent it from transferring its funds out of authorities’ reach.
Legacy Payment Systems Also Involved in Money Laundering
While the arrests and sanctions made by governments were part of their efforts to uphold the law, critics have brought up one intriguing issue that might be too hard to ignore: “How about the giant ones?” This refers to the involvement of some of the world’s largest banking firms in money-laundering transactions with drug cartels, which rattled the global banking industry.
HSBC Holdings, a global banking giant with 40 million customers worldwide and currently the 38th largest company in the world, was one of the biggest banks caught in gross illegal activities.
In 2012, HSBC shocked the world with a money laundering scandal involving $881 million from Mexican and Colombian drug cartels. The banking giant agreed to pay $1.9 billion to regulators for the audacious violations, and as a “fitting” icing on the cake, not a single arrest was made.
Authorities at that time argued that HSBC was “too big to jail,” and severe sanctions against the bank may cause undesirable global ripple effects due to its massive size. A very balanced justice indeed.
Other banking giants such as ING, Standard Chartered, Barclays, Royal Bank of Scotland, and Credit Suisse have also paid violation fees for doing business with so-called rogue nations, including Iran, Libya, and Sudan.
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