US Treasury adds cash penalties to tornadoes with North Korea WMD claims

The US Treasury Department is “redesignating” Tornado Cash as a sanctioned entity, openly alleging that North Korea has used the crypto mixing service to support its Weapons of Mass Destruction (WMD) program.

The Treasury Department’s Office of Foreign Asset Control (OFAC) said Tuesday it would scrap and rebrand the privacy tool, which aggregates transactions to hide senders and recipients, over allegations that North Korea allegedly laundered over $100 million worth of crypto through Tornado Cash to support its ADM program, including the development of ballistic missiles. The sanctions watchdog first named Tornado Cash in August this year.

“This action is part of ongoing U.S. efforts to limit the DPRK’s ability to advance its illegal weapons of mass destruction (WMD) and ballistic missile programs that threaten regional stability and follows numerous launches recent DPRK ballistic missile strikes, which are in clear violation of several United Nations (UN) Security Council resolutions,” a Treasury press release said.

North Korea has fired a number of its missiles in recent months, causing panic in Japan and South Korea as the missiles flew in their general direction, although no missiles made landfall.

In addition to Tornado Cash, OFAC sanctioned North Korea’s national airline, Air Koryo, and two people the watchdog said helped North Korea transfer missile parts into the country.

In a statement, Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson said “today’s sanctions action targets two key nodes in the DPRK’s weapons programs: its growing reliance on against illicit activities, including cybercrime, to generate revenue, and its ability to procure and transport goods in support of weapons of mass destruction and ballistic missile programs.

Designation ‘Entity’

OFAC also released a new FAQ to answer longstanding questions about who, exactly, was being added to its Specially Designated Nationals (SDN) list. Much of the crypto industry has argued that Tornado Cash and its wallet addresses are software, not a person or entity, and therefore OFAC should not be able to designate the mixer as a sanctioned entity.

Lawsuits funded by Coinbase and Coin Center included this argument, along with the allegation that the Tornado Cash designation was too sweeping and hurtful to Americans who had funds tied up on the platform. OFAC previously issued guidance for US persons, detailing a process they could undertake to try to recover their funds by applying for a specific license.

In its new FAQ, the Treasury pushed back on that argument, saying an entity could be “a partnership, association…or other organization.”

Tornado Cash is an entity within the meaning of the definition created by the executive orders overseeing the sanctions, OFAC said. The organizational structure includes both the founders and developers of Tornado Cash, as well as the Decentralized Autonomous Organization (DAO) that votes on new features.

“Tornado Cash uses computer code known as “smart contracts” to implement its governance structure, provide mixing services, offer financial incentives to users, grow its user base, and facilitate the financial gain of its users and developers,” OFAC said.

The watchdog noted that the founders, members and DAO users of Tornado Cash were not sanctioned “at this time”.

UPDATE (November 8, 2022, 8:20 PM UTC): Adds additional context.

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