Every time someone executes a cryptocurrency transaction, the proof of that transaction is encoded into the currency itself. Known as blockchain, this digital ledger allows cryptocurrency users to verify the legitimacy (or lack of legitimacy) of their transactions by viewing the cryptocurrency wallet’s record of the origin and destination of their virtual tokens. can. However, the blockchain does not name the cryptocurrency wallet owner involved in the transaction.
Cryptocurrency mixers like Tornado Cash add another level of anonymity by obfuscating these transaction histories.
To better understand how a cryptocurrency mixer works, imagine a bank that operates 24/7. Banking allows you to fund one large shared account instead of getting your own account.
Your money is not kept separate from other people’s money, so when you deposit funds you receive a code that you can later use to get that money back. You can keep the code to yourself, or share it with someone you know to receive the money on their behalf. The choice is yours, but in both cases the transaction can be made anonymously.
Banks keep track of how much money goes in and out of shared accounts so that no one’s funds are stolen. Because the bank will be held accountable. But it doesn’t track who put money in or out of shared accounts, when, or why.
This is a dramatized example of how law-abiding citizens can theoretically move tokens in an anonymous and decentralized manner using a cryptocurrency mixer that acts as a shared storage unit for cryptocurrencies.
“It’s like breaking the chain of transaction history, it’s a real way of tracking cryptocurrencies within the blockchain, seeing how they move from wallet to wallet to wallet.” said Paul Roberts, the new FBI agent. Complex financial crimes branch office of the York branch office.
know your customers (KYC) and bank secrecy law Roberts said regulations enforced by the Treasury Department’s Financial Crimes Enforcement Network (or BSA) require cryptocurrency mixers to know exactly how and by whom their services are being used. . He likened these rules to the identification requirements and mandatory forms associated with opening a new bank account.
However, Tornado Cash flouted these rules and the company’s stance allowed criminals and organizations like the Lazarus Group to launder money through its services.
“Tornado Cash should have been registered as a money service business and should have required those using the service to register those forms,” Roberts said. Roberts added that while it was unlikely that a criminal gang would admit to opening the account in bad faith, the required documentation could have at least raised red flags about the identity of the account holder. And in theory, Storm and Seminov could have stopped the money laundering before it started.
Further complicating matters, even though Lazarus Group didn’t need to do any paperwork to use Tornado Cash, Storm and Semenov realized they were still using their service. and allowed its use.
“[Storm and Semenov] We have implemented changes to our service so that we can publicly announce that we are complying with sanctions, but we have agreed that these changes will have no effect on private chats,” the Department of Justice wrote. “They continued to operate the Tornado Cash Service after that, facilitating hundreds of millions of dollars in further sanctions-violating transactions, and criminalizing the Lazarus Group from cryptocurrency wallets that had been designated as blocked assets by the Office of Foreign Assets Control. We helped remit the proceeds.”
These actions collectively led to indictments on charges related to money laundering, sanctions violations, and unlicensed company operations.
