The U.S. Treasury Department has answered a few questions about regulatory compliance regarding Tornado Cash, a recently sanctioned crypto mixer. Answers include how to withdraw crypto or conduct transactions initiated using Tornado Cash before its sanction and how to handle “dust” transactions.
Treasury Department Releases Tornado Cash FAQ
The U.S. Treasury Department has answered some frequently asked questions questions Tuesday about the sanctioned cryptocurrency mixing service Tornado Cash.
On August 8, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Ethereum-based mixer and prohibits U.S. persons from “engaging in any transaction with Tornado Cash or its escrow assets or property interests.”
One of the questions concerns how to complete transactions involving Tornado Cash initiated before the sanction. In order to complete the transactions or withdraw the cryptocurrency without violating US sanctions regulations, the Treasury Department explained:
US persons or persons transacting in the jurisdiction of the United States may apply for a specific license from OFAC to transact involving the virtual currency in question.
“U.S. Persons should be prepared to provide, at a minimum, all relevant information regarding such transactions with Tornado Cash, including sender and recipient wallet addresses, transaction hashes, date and time of the transaction(s), as well as the amount(s) of virtual currency,” the Treasury added.
Another question relates to the declarative obligations of “dusting” operations. The Treasury noted that OFAC is aware that “certain U.S. persons may have received unsolicited, nominal amounts of virtual currency or other virtual assets from Tornado Cash, a practice commonly referred to as ‘sprinkling’.”
While warning that “technically, OFAC regulations would apply to these transactions,” the Treasury explained that while these dusting transactions have no sanctions connection other than Tornado Cash:
OFAC will not prioritize enforcement against the late receipt of initial freeze reports and subsequent annual reports on the blocked assets of such U.S. Persons.
The Treasury emphasized that “U.S. persons are prohibited from engaging in transactions involving Tornado Cash, including through OFAC-identified virtual currency wallet addresses.” However, the authority clarified:
Interacting with the open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited.
Lawyer Jake Chervinsky shared his thoughts on OFAC’s clarification in a series of tweets. He noted that the FAQ “does not fully address collateral damage caused by naming.” Commenting on OFAC requiring “each person to file their own individual license application”, Chervinsky said, “It shouldn’t be necessary: American people shouldn’t have to ‘apply’ for their own money.”
As for dusting off, he said, since victims are required to file initial blocking reports and subsequent annual reports, “enforcement remains on the table if those reports are delayed.” The lawyer pointed out:
It is not enough to deprioritize prosecutions: OFAC should not consider prosecuting victims at all.
Following the Tornado Cash sanction, Coin Center, a nonprofit focused on policy issues facing cryptocurrencies, said OFAC had exceeded his statutory authority.
What do you think of Treasury’s clarification regarding the Tornado Cash mixing service? Let us know in the comments section below.
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