Shalini Nagarajan

The Department of Justice’s (DOJ) crypto-focused enforcement unit is intensifying efforts to unleash a relentless pursuit against illicit activities.



Leading the charge, the unit’s head pledged to take decisive action against illegal activities occurring on digital platforms.



Eun Young Choi, the director of the DOJ’s National Crypto Enforcement Team (NCET), emphasized the substantial rise in crypto-related criminal incidents over the past four years in a recent interview <a href="https://www.ft.com/content/5aac457e-cc80-44ae-ac40-9b51d9b601a3" target="_blank" rel="noreferrer noopener">published</a> by the Financial Times on Monday.



She spoke about the agency&#8217;s focus on combating criminal activities within the crypto exchange realm. This includes addressing exchanges that engage in illicit behavior or facilitate crimes, such as money laundering.&nbsp;



After assuming her <a href="https://www.justice.gov/opa/pr/justice-department-announces-first-director-national-cryptocurrency-enforcement-team" target="_blank" rel="noreferrer noopener">director role</a> last year, Choi appears to be determined to prioritize these exchanges as a crucial part of the agency’s continuous endeavor to maintain law and order within the crypto industry. 



Choi said this emphasis would send a preventive message to businesses that skirt anti-money laundering or client identification rules and who are investing in solid compliance and risk mitigation practices. She didn’t specify any particular names.



Binance, a titan among crypto exchanges, has faced its <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">share of scrutiny</a>, accused of unlawful operations with the US. Simultaneously, Coinbase CEO Brian Armstrong raised the possibility of <a href="https://www.bloomberg.com/news/articles/2023-04-18/coinbase-ceo-won-t-rule-out-relocating-company-away-from-us" target="_blank" rel="noreferrer noopener">relocating</a> the exchange’s headquarters beyond US borders unless regulatory approaches transform.



In a move to tackle the underworld of crypto, the DOJ <a href="https://blockworks.co/news/us-justice-department-to-launch-national-cryptocurrency-enforcement-team">launched the NCET</a> in Oct. 2021. Its aim is to combat money laundering, cybercrime and various other crypto-related offenses.



Choi, who says the illicit use of digital assets has gone hand in hand with widespread adoption, indicated that the department will reject considering a company’s size when assessing potential charges.



She made it clear that the DOJ will not grant immunity to companies that achieve significant market share through flagrant violations of US criminal law. Their growth cannot be wielded as a shield against accountability.



In addition to exchanges, the DOJ’s crypto unit is poised to take decisive enforcement action against investment scams. The surge in funds lost to these fraudulent schemes skyrocketed from about $900 million in 2021 to over $2.5 billion last year, spurring protective measures, the FT said, citing reports of victims submitted to the FBI.



In April, the DOJ <a href="https://www.justice.gov/usao-cdca/pr/justice-dept-seizes-over-112m-funds-linked-cryptocurrency-investment-schemes-over-half" target="_blank" rel="noreferrer noopener">seized over $112 million</a> in crypto scams, commonly called “pig butchering” (deceptive victimization schemes). 



In its pursuit of tackling theft and hacks in the DeFi realm, the DOJ has also sights set on <a href="https://blockworks.co/tag/bridges" target="_blank" rel="noreferrer noopener">cross-chain bridges</a>, which have been a prime target for malicious attacks.



Choi’s remarks follow a tumultuous year in the crypto industry, including the downfall of <a href="https://blockworks.co/tag/terraform-labs" target="_blank" rel="noreferrer noopener">Terraform Labs</a>, <a href="https://blockworks.co/tag/3ac" target="_blank" rel="noreferrer noopener">Three Arrows Capital</a> and <a href="https://blockworks.co/tag/FTX" target="_blank" rel="noreferrer noopener">FTX</a>.



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DOJ Crypto Chief Signals Crackdown on Exchanges

Binance is no stranger to controversy and has regularly found itself entangled in several scandals in recent years.



An Israeli anti-terror finance squad halted suspicious Binance accounts the government says are linked to Islamic State and Hamas, two notorious extremist groups with a history of violence and terrorism, forcing Binance to once again <a href="https://blockworks.co/news/cftc-binance-compliance-hires">defend its compliance record</a>.&nbsp;



The agency seized some 190 accounts on Binance over the past 18 months, Reuters <a href="https://www.reuters.com/world/middle-east/israel-seized-binance-crypto-accounts-thwart-islamic-state-document-shows-2023-05-04/" target="_blank" rel="noreferrer noopener">reported</a> on May 5, citing <a href="https://nbctf.mod.gov.il/he/PropertyPerceptions/Documents/%D7%A6%D7%AA%201-23.pdf" target="_blank" rel="noreferrer noopener">documents</a> from Israel’s counter-terror authorities. Two of those accounts were tied to Islamic State and others were linked to the infamous Hamas group.&nbsp;



The document stated that the seizure of the accounts was necessary to prevent the activity of ISIS and hinder its ability to achieve its goals. It didn’t provide clarity on the value of the confiscated cryptoassets, or elaborate on the precise nature of the connection between the accounts and ISIS.



An individual identified as Osama Abuobayda, a 28-year-old Palestinian, was named as the owner of the two ISIS-linked Binance accounts seized by Israeli authorities.



Nearly all the others were owned by three Palestinian currency exchange firms, Al Mutahadun For Exchange, Dubai Company for Exchange and Al Wefaq Co. For Exchange.



The agency <a href="https://nbctf.mod.gov.il/en/Pages/23042023EN.aspx" target="_blank" rel="noreferrer noopener">announced</a> in April that it had confiscated roughly 500,000 shekels ($137,870) from about 80 Binance accounts associated with the three Palestinian currency exchange firms.&nbsp;



Binance issued a <a href="https://www.binance.com/en/blog/community/our-response-to-reuters-1363137884256691497" target="_blank" rel="noreferrer noopener">blog</a> in response to Reuters’ report, denying inadequate compliance with anti-money laundering requirements and asserting its collaboration with international counter-terrorism authorities.



“With regard to the specific organizations mentioned in the article, it&#8217;s important to clarify that bad actors don&#8217;t register accounts under the names of their criminal enterprises,” the company wrote.&nbsp;



“This is why our team collaborates with law enforcement, and leverages information that is only available to them in order to identify individuals operating accounts for illicit organizations.”



The exchange added that it’s already helped law enforcement freeze more than $1 billion so far this year.



In Israel, the Defense Minister can seize assets tied to terrorists, whether it’s piles of cash, fancy cars or digital assets. The actions taken by Israel’s National Bureau for Counter-Terror Financing demonstrates how governments are paying closer attention to crypto companies and taking steps to prevent illegal activities.&nbsp;



Binance has previously faced scrutiny for questionable behavior. In July last year, Reuters reported that the crypto exchange <a href="https://blockworks.co/news/crypto-traders-in-iran-skirted-binance-ban-following-us-sanctions">breached US sanctions by catering to Iranian customers</a> until Sept. 2021. Additionally, the platform allegedly <a href="https://blockworks.co/news/binance-china-evade-kyc">assisted Chinese users</a> in evading local regulatory measures to trade crypto, despite the country’s crypto ban.



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Binance

Israel Seizes Binance Accounts Allegedly Linked to ISIS, Hamas

Casey Wagner

Senators Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., have pushed back reintroducing their crypto anti-money laundering bill in an effort to recruit more cosponsors, according to two people familiar with the matter.&nbsp;



The bill, which was <a href="https://blockworks.co/news/warren-unveils-new-crypto-bill">first introduced in the Senate last session in December</a>, looks to require the crypto industry, including individual miners and validators, to abide by know-your-customer (KYC) rules.&nbsp;



Industry members were expecting a revamped version of the bill to debut on the floor this week, but two insiders shared with Blockworks that the senators have delayed its reintroduction because they want to find more cosponsors.



Read more: <a href="https://blockworks.co/news/crypto-bills-didnt-die-last-session">Crypto Bills Didn’t Die Last Session: Lawmakers Plot Reintroductions</a>



The latest version of the bill text, which has not been publicly released, includes the same language opponents originally found troubling, according to documents obtained by Blockworks.



The following groups will be responsible for adhering to <a href="https://blockworks.co/tag/know-your-customer" target="_blank" rel="noreferrer noopener">KYC policies</a>: “unhosted wallet providers, digital asset miners, validators, or other nodes that may act to validate or secure third-party transactions, independent network participants, including maximal extractable value searchers, miner extractable value searchers, and other validators or network participants with control over network protocols,” per the documents. 



<a href="https://blockworks.co/tag/elizabeth-warren">Warren</a> announced in early 2023 that the bill would be making the rounds again, highlighting heightened concerns about increased hacks and illicit actors overseas.  



“Roger Marshall and I are reintroducing our anti-money laundering bill to clamp down on crypto crime and give regulators the tools they need to stop the flow of crypto to drug traffickers and places like North Korea,” Warren said <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">during a Senate Banking Committee hearing in February</a>.&nbsp;



Bill opponents argue the legislation goes too far; the expectations being put on the industry are unattainable, crypto advocacy group the Chamber of Digital Commerce <a href="https://digitalchamber.org/statement-on-digital-asset-aml-act/">said</a> earlier this week in response to the bill. 



The proposed law “​​aims to eradicate digital asset innovation from the United States at the expense of market security by imposing impractical and unworkable compliance burdens on industry participants,” the Chamber of Digital Commerce said in their statement.&nbsp;



Representatives from Warren and Marshall did not respond to Blockworks’ request for comment.



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Elizabeth Warren

Sens. Warren, Marshall Delay Reintroducing Crypto Bill Due to Lack of Sponsors

Binance employees reportedly helped some users in China skirt local regulatory controls meant to keep locals out of the top crypto exchange.



China’s central bank declared all crypto transactions illegal in 2021, a move that essentially <a href="https://blockworks.co/news/crypto-markets-tumble-on-pboc-news">restricted</a> international crypto exchanges from the region.



But CNBC has <a href="https://www.cnbc.com/2023/03/23/binance-employees-volunteers-tell-users-how-to-evade-china-crypto-ban.html" target="_blank" rel="noreferrer noopener">reported</a> details of Binance’s Discord and Telegram official chatroom histories. The outlet found accounts identified as Binance employees (or Binance-trained volunteers known as “Angels”) had taught China-based users methods of avoiding know-your-customer (KYC) checks and verification systems.&nbsp;



These approaches involved falsified documents such as forged bank statements and wrong addresses, CNBC said.



Mainland China residents were reportedly sent video guides and other resources by employees, volunteers and other customers, showing them how to fabricate their country of residence so they could get access to the exchange’s debit card.&nbsp;



A <a href="https://blockworks.co/tag/binance" target="_blank" rel="noreferrer noopener">Binance</a> spokesperson told Blockworks that the exchange has taken action against employees who might have violated its policies that include giving advice against internal standards.&nbsp;



“We have strict policies requiring all users to pass KYC by providing us with their country of residence and other personal identification information,” the spokesperson said, adding that employees are unauthorized to support users in skirting local laws or regulatory policies and that they would be “dismissed or audited” if found to be in violation.&nbsp;



They didn’t respond to a query on how many employees were involved in the matter.



Alongside reported crackdowns on local and foreign crypto exchanges operating in the mainland, Chinese officials have repeatedly warned residents to steer clear from the digital asset market.&nbsp;



KYC checks and other anti-money laundering measures are key to disallowing users from either sanctioned countries or those where trading is deemed illegal.&nbsp;



<h2 class="wp-block-heading">Binance and restricted jurisdictions</h2>



Binance had been blocked in China since 2017 when local crypto exchanges were ordered to cease operations. After the 2021 ban, Binance <a href="https://markets.businessinsider.com/news/currencies/china-crypto-ban-binance-huobi-cut-ties-mainland-users-reactions-2021-9" target="_blank" rel="noreferrer noopener">told</a> Insider it didn’t hold exchange operations in China and that the Binance app is not available for downloads there.&nbsp;



<a href="https://blockworks.co/news/crypto-traders-in-iran-skirted-binance-ban-following-us-sanctions" target="_blank" rel="noreferrer noopener">Reuters</a> previously reported that Binance accommodated crypto traders in Iran on its platform despite US sanctions and a company ban. At the time, Binance’s global head of sanctions, Chagri Poyraz said traders can manage to avoid geographical restrictions through the use of virtual private networks (VPNs).



A Binance spokesperson told Blockworks the company has implemented detection tools to crack down on users in restricted and sanctioned regions that had access to sophisticated masking tools, including VPNs.



“Users who are found to have used any sort of workaround to avoid local law are restricted immediately,” they added.&nbsp;



“However, it is extraordinarily rare for users to be able to implement workarounds as we have multiple manual and AI-driven processes to ensure users cannot circumvent these processes, and AI processes cannot circumvent these processes.”



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Binance ‘Angels’ Helped China-based Users Evade KYC: Report

India&#8217;s finance ministry announced Tuesday that it has applied money laundering provisions on crypto companies, forcing them to immediately align with the general finance sector.



A notification from the ministry was light on details, but showed the legislation has been applied to crypto trading, transfers of crypto, safekeeping or administration of crypto and provision of crypto. 



Essentially, from now, crypto businesses will be required to supply know-your-customer (KYC) details in case officials ask for this information.



All crypto businesses will now be reporting entities to the Indian government, meaning businesses will be legally required to report suspicious transactions to the Financial Intelligence Unit.&nbsp;



The directive follows <a href="https://www.businesstoday.in/crypto/story/crypto-exchanges-need-to-store-kyc-and-transaction-records-for-5-years-it-ministry-332047-2022-05-02" target="_blank" rel="noreferrer noopener">calls</a> from India’s IT ministry last year, encouraging crypto companies to keep five years worth of user data, including personal “Know-Your-Customer” information, to stay on regulators&#8217; good sides.



Jaideep Reddy, counsel at Trilegal, broke down what the most recent move means for crypto businesses: “Technically the notification appears to come into effect immediately,” Reddy told Blockworks, and pointed out a shortcoming with the sudden announcement.



“A transition provision specifying a period within which compliance was to be achieved would have been ideal. However, one would expect that enforcement authorities would provide reasonable time to covered entities to become compliant.”



Reddy separately elaborated in a <a href="https://twitter.com/jrtechlaw/status/1633338806047834112" target="_blank" rel="noreferrer noopener">Twitter thread</a> that crypto businesses will now be required to maintain reporting standards and KYC/AML norms to sync with other entities like banks, securities intermediaries and payment system operators. 



“In other words, KYC norms are no longer a best practice but a legal obligation,” he tweeted.



The <a href="https://egazette.nic.in/WriteReadData/2023/244184.pdf" target="_blank" rel="noreferrer noopener">move</a> has been welcomed by some parts of the industry, which say it gives businesses some level of clarity as to what types of checks the government wants.



Reports emerged last year that crypto exchanges in India were being <a href="https://inc42.com/features/inside-eds-probe-into-crypto-fintech-startups/#:~:text=The%20News%3A%20Almost%20all%20the,Money%20Laundering%20Act%20(PMLA)." target="_blank" rel="noreferrer noopener">investigated</a> by the Enforcement Directorate, which is responsible for fighting economic crime. WazirX, Coinswitch Kuber, CoinDCX and Zebpay were among exchanges approached by the directorate.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">such businesses need to follow similar reporting standards and KYC/AML norms to other reporting entities like banks, securities intermediaries, payment system operators, etc. In other words, KYC norms are no longer a best practice but a legal obligation. 2/4&mdash; Jaideep Reddy (@jrtechlaw) <a href="https://twitter.com/jrtechlaw/status/1633338808144912384?ref_src=twsrc%5Etfw">March 8, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The crypto landscape in India hasn’t been totally friendly. The government decided to <a href="https://blockworks.co/news/india-introduces-penalty-on-exchanges-individuals-not-complying-with-crypto-tax" target="_blank" rel="noreferrer noopener">retain the 30% tax</a> imposed on crypto profits, on top of a 1% tax deducted at source (TDS), in its latest budget.



Offenders or platforms that don’t adhere to the TDS will be penalized under an amendment to Section 271C of the Income Tax Act. They could either be fined or jailed for terms lasting between 3 months to 7 years.



In October, the Financial Action Task Force (FATF) pushed for member nations to implement a “<a href="https://ciphertrace.com/wp-content/uploads/2022/10/CipherTrace_Travel-Rule-Guide_FINAL.pdf" target="_blank" rel="noreferrer noopener">travel rule</a>” that would track crypto transactions in order to block terrorist financing and other illegal activities. It isn’t clear yet whether India intends to enforce the travel rule.



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Anti-money laundering

All Crypto Companies in India Must Now KYC Users

<div id="highlights-block_630f30b53f339" class="highlights">
 <ul>
 <li>The World Intellectual Property Organization said the disputed name is simply an abbreviation of the crypto firm’s service</li>
 <li>Still, privacy-focused crypto startup DKYC is now rebranding its website to “ShadowFi” </li>
 </ul>
 
</div>



Crypto startup Don’t Know Your Customer has managed to avoid a cybersquatting complaint put forth by accounting giant Deloitte over its domain name.



Deloitte offers a service for Know-Your-Customer operations called <a href="https://www2.deloitte.com/lu/en/pages/financial-advisory/solutions/deloitte-kyc.html" target="_blank" rel="noreferrer noopener">DKYC</a>, which involves due diligence via document collection. 



But the mega-firm took issue with web design firm Penultimate Media Systems registering a version of that name as <a href="https://dontkyc.com/" target="_blank" rel="noreferrer noopener">dontkyc.com</a> for its crypto client — a startup offering prepaid cards pitched as a way to spend certain Binance Chain tokens in the real-world without having to disclose personal information.



A recent <a href="https://www.wipo.int/amc/en/domains/decisions/pdf/2022/d2022-1775.pdf" target="_blank" rel="noreferrer noopener">decision</a> by the World Intellectual Property Organization, shared by <a href="https://domainnamewire.com/2022/08/30/crypto-company-defeats-deloitte-in-cybersquatting-dispute/" target="_blank" rel="noreferrer noopener">Domain Name Wire</a>, showed Deloitte failed to establish that the disputed name was used by the crypto firm illicitly, highlighting that the domain name is not dkyc.com, but dontkyc.com.



The issue for Deloitte was that the domain name is “highly similar” to its trademark and that the crypto firm offered financial services under its identical “DKYC” sign, according to the document. It also noted the crypto firm does not identify as an active company or provide a valid postal address on its website.



Deloitte argued that the crypto startup had made multiple references with fraudulent intentions to “DKYC,” but not using “dontkyc” — which is reflected in the disputed domain name.&nbsp;



The domain owner was accommodating in turn, saying it’s ready to modify branding and change references to “DKYC” if that would help the case. It claimed to have searched the US Patent and Trademark Office for the disputed domain name prior to registration with no results. It later learned DKYC was registered in other territories.



The <a href="https://dontkyc.com/" target="_blank" rel="noreferrer noopener">website</a>, as of Wednesday, showed DKYC is rebranding to “ShadowFi.&#8221; The startup describes itself as a small community-based non-profit token operating on the Binance Smart Chain, promising an absence of KYC measures in order to ensure privacy. “Our vendor doesn’t know who we are, and we don’t know who you are. No ID required. Ever,” states its website.



WIPO’s sole panelist Adam Taylor said Deloitte still has the option to take the crypto firm to court for infringement of intellectual property rights, if it believes there is sufficient ground to do so.



Representatives for Deloitte, DKYC and Penultimate Media didn’t return Blockworks’ request for comment by press time.



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crypto startup

Crypto Startup Clashes With Deloitte Over Domain — And Wins

<div id="highlights-block_62f6b8cfa0914" class="highlights">
 <ul>
 <li>Chainalysis reports 10.5% of funds ran through Tornado Cash were stolen</li>
 <li>Classifying code as an entity for the purpose of sanctions laws gets complicated, experts say</li>
 </ul>
 
</div>



The Treasury Department’s decision to sanction a second <a href="https://cms.blockworks.co/crypto-mixers-and-privacy-coins-can-they-resist-censorship/">crypto mixing service</a> has sent blockchain enthusiasts and privacy chauvinists in an uproar this week. 



On Monday, <a href="https://cms.blockworks.co/treasurys-tornado-cash-sanctions-have-companies-stepping-back-from-users/" target="_blank" rel="noreferrer noopener">Tornado Cash</a>, a cryptocurrency mixing service allegedly used to launder stolen funds linked to major hacks, was added to the Office of Foreign Asset Control’s Specially Designated Nationals (SDN) list, along with 45 associated Ethereum wallet addresses.&nbsp;



“OFAC’s designation of Tornado Cash is a crucial moment in the fight against cryptocurrency-based crime,” a <a href="https://blog.chainalysis.com/reports/tornado-cash-ofac-designation-sanctions/" target="_blank" rel="noreferrer noopener">report</a> from blockchain analytics firm Chainalysis said. 



Read more: <a href="https://cms.blockworks.co/crypto-mixers-and-privacy-coins-can-they-resist-censorship/">Coin Mixers and Privacy Coins: Can They Resist Censorship?</a>



“For one thing, it’s especially timely: More cryptocurrency is being stolen than ever, and in almost every hack we’ve observed this year, Tornado Cash has received at least some of the stolen funds.”



The Treasury alleges that North Korea-sponsored hacking group <a href="https://cms.blockworks.co/fbi-says-north-korea-behind-625m-ronin-hack/" target="_blank" rel="noreferrer noopener">Lazarus Group</a>, which in March stole over $620 million in cryptocurrency from the Ronin Bridge protocol, attempted to conceal the origin of the funds with Tornado Cash. Chainalysis agrees.&nbsp;



“Lazarus Group is one of the biggest perpetrators of these [decentralized finance] hacks,” Chainalysis said in its report. “Soon after the Ronin Bridge theft, the hackers sent much of those funds to Tornado Cash in order to be laundered.”&nbsp;



<h3 class="wp-block-heading">Not the first mixing service to be targeted&nbsp;&nbsp;</h3>



It’s not the first time OFAC has sanctioned a cryptocurrency mixer. In May, officials targeted <a href="https://cms.blockworks.co/us-treasury-sanctions-first-crypto-mixing-service-following-record-hack/" target="_blank" rel="noreferrer noopener">Blender.io</a>, a centralized service Lazarus Group also allegedly used to conceal stolen funds. But Tornado Cash is different, some experts say.&nbsp;



“Blender.io was designated back in May of this year, but it&#8217;s different and in a pretty meaningful way, which is that was a centralized custodial service and this…is just code,” Michael Mosier, former deputy chief in the Department of Justice’s money laundering and asset recovery section, said during a <a href="https://twitter.com/i/spaces/1vOxwyrdLeEGB?s=20" target="_blank" rel="noreferrer noopener">Twitter Spaces</a> discussion Friday.



As a smart contract-based mixing service, Tornado Cash can continue to run without individual actors, those who oppose the sanctions insist. It’s an argument that Tornado Cash co-founder Roman Semenov has long <a href="https://www.bloomberg.com/news/articles/2022-03-10/crypto-obfuscator-tornado-says-sanctions-cant-affect-smart-contracts?sref=3REHEaVI#xj4y7vzkg" target="_blank" rel="noreferrer noopener">used himself</a>, but others have expressed doubt in this line of reasoning.&nbsp;



“I do not think personally, although we&#8217;re still kind of working through arguments…that you can necessarily make a particularly strong argument that Tornado Cash is not an entity,” Peter Van Valkenburgh, director of research at Coin Center, said during the Twitter Spaces. “As far as I know, Blender.io wasn&#8217;t incorporated in any legal jurisdiction, either.”&nbsp;



Some people retain a level of control over Tornado Cash&#8217;s admin keys, Van Valkenburgh said, allowing them to make changes to the code and therefore would be the ‘entity’ in the eyes of the government.&nbsp;



It gets murky though, Van Valkenburgh added, because Tornado Cash, as code, is not in and of itself ‘property.’&nbsp;



“It would be almost like we discovered that Phillips, the person who invented the Phillips head screwdriver, did something very, very bad, and we sanctioned his bank accounts, but then we also said that no one is allowed to use Phillips head screwdrivers anymore,” he said.&nbsp;



The blanket sanctions have collateral consequences, Rebecca Rettig, general counsel at Aave, said during the Twitter Spaces. Targeting every wallet that has come in contact with funds from Tornado Cash, no matter how far removed, is still a hypothetical scenario, but it’s one that could have a significant negative impact, Rettig said.&nbsp;



“The thought process through what all the unanticipated consequences would be was very narrow here, because it seems like a very severe reaction to software that is being used for some illicit activity,” she added.&nbsp;



<h3 class="wp-block-heading">Tornado Cash’s compliance responsibility&nbsp;</h3>



OFAC’s decision suggests that all protocols, decentralized or not, are subject to the same compliance obligations, Chainalysis’ report said. It is the responsibility of the mixer itself to stop illicit activity, officials say.&nbsp;



“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” Brian Nelson, the Treasury’s under secretary for terrorism and financial sntelligence, said after the sanctions were announced.&nbsp;



Since its launch in August 2019, Tornado Cash has received over $7.6 billion worth of ether, “a sizable portion of which have come from illicit or high-risk sources,” Chainalysis’ report noted. Of this figure, about 18% of funds came from sanctioned entities, but, the report notes, almost all of the funds were received before the entities were added to the sanctions list.&nbsp;



Less than 11% of funds received by the recently-sanctioned crypto mixing service Tornado Cash were stolen from other cryptocurrency exchanges and protocols, according to Chainalysis.



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know-your-customer

Decentralized or Not, Officials Say Tornado Cash Responsible for Illicit Activity

Sebastian Sinclair

<div id="highlights-block_628eca8bddf7b" class="highlights">
 <ul>
 <li>Data analytics firm Kharon and cloud-native screening provider Neterium will assist Binance in its efforts</li>
 <li>The exchange says the partnership will complement its existing screening controls for illicit crypto activity including sanctions measures</li>
 </ul>
 
</div>



Cryptocurrency exchange Binance is vying to bolster its know your customer (KYC) controls and sanctions screening via a new partnership aimed at curbing the exchange&#8217;s potential risk.



The company said Wednesday it has tapped data analytics firm Kharon and cloud-native screening provider Neterium to further its efforts to detect illegal crypto activity on its platform.



&#8220;Working with Kharon and Neterium allows us to leverage Kharon&#8217;s best-in-class data with Neterium&#8217;s innovative technology to address our risk,&#8221; Binance Global Head of Sanctions Chagri Poyraz said in a statement. 



The exchange assertd the partnership will complement its existing screening technology, while simultaneously addressing its regulatory requirements. Among those obligations — imposed by regulators worldwide — has been to monitor for and enforce sanctions requirements.



The European Union&#8217;s <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/04/08/eu-adopts-fifth-round-of-sanctions-against-russia-over-its-military-aggression-against-ukraine/" target="_blank" rel="noreferrer noopener">latest round of sanctions</a>, issued last month, includes a series of targeted economic measures with a section aimed at an extended prohibition on deposits to crypto wallets. 



Previously hesitant about imposing restrictions on Russians, Binance CEO Changpeng “CZ” Zhao said in an interview with&nbsp;<a href="https://www.bloomberg.com/news/articles/2022-03-02/biggest-crypto-exchange-says-blocking-all-russians-unethical" target="_blank" rel="noreferrer noopener">Bloomberg</a> in March his exchange would resist calls to limit services to “normal people.”



A month later, Binance moved to <a href="https://cms.blockworks.co/binance-to-limit-services-to-russians-following-latest-round-of-eu-sanctions/" target="_blank" rel="noreferrer noopener">restrict its services</a> to Russian users following the country&#8217;s invasion of Ukraine in February and reactionary financial sanctions designed to curb capital flows to Europe&#8217;s largest nation. Russian nationals with holdings above 10,000 euros ($10,703) have been limited to withdrawal-only mode.



Binance, which has previously ended up in hot water with regulators over its alleged failure to apply or register for financial services licenses in multiple jurisdictions, appears willing to play ball.



&#8220;Virtual asset service providers require the highest quality data and technology to support their compliance programs,&#8221; Kharon Chief Client Officer Howard Mendelsohn said. &#8220;Partnering with Binance to provide data and analytic tools is a critical development to address expanding regulatory expectations and mitigate risk.&#8221;



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