OFAC Opens Door for Tornado Cash Users to Potentially Withdraw Funds

OFAC also addressed “dust attacks,” or instances where a very small amount of cryptocurrency that touched Tornado Cash results in blocked wallets or accounts, in Tuesday’s clarifications


Source: DALL·E


key takeaways

  • Users who engaged with Tornado Cash prior to Aug. 8 can apply for a license to retrieve their funds
  • Interested parties must submit a variety of information, including wallet addresses, transaction hashes, dates, times and amounts of transactions

A significant number of one-time Tornado Cash users can at last apply to withdraw their funds, which have been kept in limbo following a series of US sanctions slapped on the cryptocurrency mixer. 

Those who initiated Tornado Cash transactions prior to Aug. 8 can now try to regain access to their funds, the Office of Forigen Asset Control (OFAC) said Tuesday. 

OFAC added Tornado Cash and 45 related Ethereum wallet addresses to the Specially Designated Nationals (SDN) list that same day, alleging North Korea-backed hacker collective Lazarus Group used the service to launder more than $455 million in stolen crypto. 

It is the second time the Treasury has blocked a crypto mixer: Blender.io was sanctioned in May. 

OFAC released an FAQ document Tuesday to clarify concerns about cyber-related sanctions. Users that have funds locked in Tornado Cash may be able to retrieve assets if they apply for a license, the regulator said. Interested Tornado Cash customers can apply for the license online — though it’ll require disclosing a significant amount of personal information.

“U.S. persons should be prepared to provide, at a minimum, all relevant information regarding these transactions with Tornado Cash, including the wallet addresses for the remitter and beneficiary, transaction hashes, the date and time of the transaction(s), as well as the amount(s) of virtual currency,” the Treasury said in the document. 

OFAC also addressed “dust attacks” — instances where a very small amount of cryptocurrency that touched Tornado Cash results in blocked wallets or accounts. In August, more than 600 addresses were targeted with the same Tornado-associated 0.01 ETH, around $20 at the time. 

“Technically, OFAC’s regulations would apply to these transactions,” the Treasury said.  “To the extent, however, these ‘dusting’ transactions have no other sanctions nexus besides Tornado Cash, OFAC will not prioritize enforcement against the delayed receipt of initial blocking reports and subsequent annual reports of blocked property from such U.S. persons.”

The regulator clarified that, on the whole, US citizens and related entities are still prohibited from using Tornado Cash, interacting with the mixer or engaging with any sanctioned wallets. 

OFAC’s latest move comes shortly after industry members moved ahead with a lawsuit against the regulator. The plaintiffs argue that the regulatory authority overstepped its power by sanctioning the software. The legal effort is being funded by Coinbase, which is fighting regulatory battles of its own as uncertainty around token classification continues. 

The suit, filed in federal court in the Western District of Texas, features six plaintiffs: Coinbase employees Tyler Almeida and Nate Welch, Prysmatic Labs co-founder Preston Van Loon, GridPlus engineer Kevin Vitale, Ethereum proponent and angel investor Alex Fisher, and former Amazon engineer Joseph Van Loon. 

“Unfortunately, the national security hawks in Congress way out number the privacy hawks, and by a very large portion,” Ron Hammond, director of government relations at the Blockchain Association, said during a Blockworks webinar. “Capitol Hill will always be more about taking more privacy rights slowly away in the name of national security.”

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