Tag: us treasury

First Bitcoin Mixer Slapped with $60M Fine by FinCEN in Money Laundering Crackdown

The Financial Crimes Enforcement Network (FinCEN) has charged a Bitcoin-mixing operator with a $60 million civil money penalty for violating anti-money laundering regulations.

Bitcoin shuffling gone wrong

Larry Dean Harmon was arrested and charged with providing unregistered money services businesses from 2014 to 2020. Operating under Helix and Coin Ninja, he contributed as a founder and primary operator. Both platforms provided Bitcoin trading services and virtual currency mixers. Currently, in addition to being fined a $60 million penalty, Harmon also faces charges of conspiracy for money laundering and operating “an unlicensed money transmitting business.”

According to FinCEN’s announcement, Harmon laundered over $300 million in Bitcoin (BTC) and enabled the trafficking of drugs, guns, and child pornography by promoting Helix’s services as a Bitcoin mixer through the dark web. US law officials also stipulated that over 365,000 Bitcoin transactions were processed through Helix.

In addition to promoting Helix services through his role as a primary cryptocurrency exchanger, Harmon also acted as a CEO for Coin Ninja, which was alleged to have offered unregistered money service businesses. Per the report:

“FinCEN’s investigation revealed that Mr. Harmon willfully violated the Bank Secrecy Act (BSA)’s registration, program, and reporting requirements by failing to register as a Money Services Businesses (MSB), failing to implement and maintain an effective anti-money laundering program, and failing to report suspicious activities.”

Per the charges from FinCEN, Harmon deliberately and knowingly went against the regulatory framework of the Bank Secrecy Act, conducting businesses with drug traffickers and counterfeiters by converting and exchanging Bitcoin through different techniques. FinCEN also alleges that the Bitcoin-mixing operator hid the illicit activities by actively deleting customer information he collected through Helix.

What is a Bitcoin mixer?

Bitcoin mixing is typically a solution that is used to minimize the risks of transacting with BTC online, through a “virtual currency shuffling” system. It offers services that aim to provide sender anonymity and privacy by swapping one’s BTC with others’ BTC. Privacy provided by Bitcoin mixing algorithms enables BTC investors to transact safely on the web, undetected by criminals looking to steal their crypto funds.

Unfortunately, though Bitcoin mixing can provide online security to investors and virtual currency holders, it has also been leveraged by criminals in certain instances to further their illicit activities in an anonymous way. 

US Treasury Department Believed to be Hacked by Russians, Bitcoin Bulls Respond “BTC Never Gets Hacked”

The US Treasury Department was on the receiving line of a huge security breach suffered late Sunday night that saw their internal servers targeted.

Emails belonging to the NTIA office, operating under the Department of Commerce, were infiltrated, and according to people familiar with the talks, the US department’s Microsoft Office 365 was breached. They also disclosed that this was not a recent occurrence, but that the network might have been monitored by external parties for months.

The internal emails that were hacked are not the most concerning thing but rather, they may just be the tip of the iceberg. Although US authorities have not been able to identify the culprits, Russian natives are believed to be responsible for the attack. This has yet to be fully confirmed, but investigations are currently being conducted with the help of the FBI and the Cybersecurity and Infrastructure Security Agency.

Numerous law officials have rushed to get to the bottom of this, as the concern that the US might be dealing with espionage has been brought into question. One person familiar with the talks shared with Reuters:

“This is a much bigger story than one single agency. This is a huge cyber espionage campaign targeting the U.S government and its interests.”

Bitcoin advocates say BTC will never get hacked

The incident blew up on crypto Twitter, as numerous Bitcoin advocates jumped on the occasion to present the advantages of Bitcoin (BTC) and its resistance to being hacked.

Head of the US-based coin exchange Kraken, Dan Held, said:

“Bitcoin never gets hacked.”

Anthony Pompliano, a Bitcoin pioneer and host of his own renowned crypto-friendly podcast “The Pomp” podcast also expressed his two cents by saying “Bitcoin has never been hacked” in response to the news of the US Treasury being breached. Pompliano’s response was met with a few objections, as others expressed that Bitcoin has indeed in its lifetime been hacked before.

Founder of HEX.com, Richard Heart, pointed out that Bitcoin was hacked in 2010 when “someone minted 184 Billion extra #BTC.”

Coin Center Sues IRS For Unconstitutional Tax Reporting Rules

Coin Center, a Washington DC-based Not-for-Profit organization with a focus on crypto policies, has filed a lawsuit against the United States Treasury and the Internal Revenue Service (IRS) for a tax reporting requirement it wants to pass into law.

Coin Center said the reporting requirement as detailed in the “Infrastructure Investment and Jobs Act” will require users to report transactions of $10,000 and above. The Bill demands the receiver of the funds to share the name of the sender, their date of birth, and their Social Security Number (SSN). According to the Coin Center lawsuit:

“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans,” the organization said on its website, adding that “uncover a detailed picture of a person’s personal activities, including intimate and expressive activities far beyond the immediate scope of the mandate. The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”

Coin Center is advocating that every American has the right to conduct whatever transactions they wish to conduct within a protected level of privacy that is designed.

Coin Center also noted that its “mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.”

The United States government has been doing all it can to provide long-sought oversight over the digital currency ecosystem and one of the most proactive ways it is doing this is by expanding the existing taxation provisions. While the Coin Center lawsuit is still very new, it is an indication that the crypto industry might be more resistant to whatever regulation they deem unfavourable.

Tornado Cash Sees about 80% Deposit Decline following OFAC Sanctions: Report

In just about a week since the United States Treasury Department’s Office of Foreign Assets Control (OFAC) imposed a ban on the crypto mixer, Tornado Cash, the total deposits on the platform have plummeted remarkably. 

According to data from The Block’s Research, the recorded deposit into Tornado Cash came in at $6 million following the sanction, which is exactly 78.5% lower than what was recorded in the week-ago period.

While new users are reportedly boycotting the crypto mixing protocol, those who have deposits locked up on the platform are notably sending out their funds in order not to get caught in the crosshairs of US authorities.

In clearer terms, the data from the research showed that $62 million has been withdrawn from the protocol, decreasing the amount of crypto held in its addresses by 15%. Out of this amount, $14.7 million was withdrawn in the first three hours since the sanctions were announced. 

Crypto mixers are a privacy tool that helps obfuscate the sources of transactions without emphasising Know Your Customer (KYC) or Anti-Money Laundering (AML) checks. Since its inception, the US Treasury Department pointed out that Tornado Cash has been used to process as much as $7 billion since 2019, with about $455 million of the quoted funds belonging to the notorious crime group Lazarus Group.

The sanctions on the crypto mixing tool have alerted many service providers, including the currently embattled crypto lending outfit Celsius Network to place an embargo on addresses linked to Tornado Cash. 

Besides Celsius, the decentralised exchange platform dYdX has also informed its users that it has started blocking accounts linked to Tornado Cash. The sanctions on Tornado Cash also follow the same ban on Blender.io, a mixing tool placed on the OFAC sanctions list back in May.

Tornado Cash Developer Arrested by Dutch Authorities

The Dutch Fiscal Information and Investigation Service (FIOD) has arrested a suspect in connections to money laundering crimes on the crypto mixing platform, Tornado Cash.

According to the statement, an individual is a 29-year-old man arrested in Amsterdam with his identity obscured by the regulator.

Tornado Cash was sanctioned last Monday by the US Treasury owing to its connections with facilitating cyber crimes, especially for North Korean hackers. 

The crypto mixing platform enables its users to obscure the inflow and destination of crypto asset transfers. And this has increased the crimes of money laundering on its platform significantly. The statement of the US Treasury notes that its investigations have revealed that Tornado Cash has facilitated the crimes of money laundering on its platform to the tune of $7 billion. 

Several hacks that have hit the crypto ecosystem have had connections with Tornado Cash continually. 

The mixing platform, however, does not deploy due diligence in ensuring that a thorough investigation of the origin and destination of the transactions that take place on its platform is done. This hinders the tracking down of criminal activities. This oversight has now attracted sanctions from the US Treasury and a closer watch from the FIOD.

An affiliate team of the FIOD, Financial Advanced Cyber Team (FACT) launched a criminal investigation on Tornado Cash and suspects that the firm is guilty as claimed.  

The Dutch regulator, however, noted that, as the investigation progresses, several arrests will still be made. Adding that it will deploy all the measures possible to ensure a safe crypto environment for its citizens.

With the issued sanctions by the US regulator, users on the mixing platform have withdrawn their assets to a great degree, with deposits declining remarkably.

According to a report, following the sanctions, about 15% of the assets held by Tornado Cash have been withdrawn so far. Tornado Cash has however not issued any statements concerning the claims of the US Treasury and the Dutch regulator.

Tornado Cash Community Fund Signatories Relinquish their Positions

The sanctions on the cryptocurrency mixing protocol, Tornado Cash, by the US Treasury Department are causing more internal wranglings for the platform than projected.

In the latest update, the signatories to the protocol’s community funds have relinquished their role, automatically ceding control of the funds to the Decentralized Autonomous Organization (DAO).

Tornado Cash had a robust and functioning ecosystem before the US regulator’s crackdown. As revealed, the mixer recorded a transaction of about $7 billion through its life cycle, and in 2021, it established a community fund to reward contributors to the protocol.

With the sanctions, the community-elected signatories to this fund decided to part ways with Tornado Cash in a bid not to incur the wrath of the US regulators. As shown by the history on Gnosis Safe, two of the five signatories removed themselves on August 12, one left the DAO on August 13, and the last two signatories dropped the pen on August 14.

With their exit, the community fund is now totally under the control of the protocol’s DAO. Association with Tornado Cash may not bode well for anyone at this time as the fine ranges from $10 million to as much as a jail term of 30 years.

The core developer behind the Tornado Cash protocol, Alexey Pertsev, was arrested by Dutch Authorities a few days ago, showcasing the risk posed to anyone with connections to sanctioned crypto mixer.

In reaction to the news of the exodus by the community elected signatories to the fund, some are optimistic that the departure will grant more powers to the holders of the Tornado Cash native token. 

Even though the Treasury Department sanctioned Blender.io prior to Tornado Cash, the impact of the sanctions on the latter is more resounding, given its close-knit nature with key stakeholders in the broader crypto ecosystem.

Coinbase Backs Lawsuit against US Treasury over Tornado Cash Sanctions

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Coinbase, the largest U.S.-based cryptocurrency exchange, is helping organize and pay the costs of a lawsuit against the U.S. Treasury Department over its sanctions on Tornado Cash. 

Six individuals, including two Coinbase employees, filed the lawsuit on Thursday, which claims that the Treasury Department overstepped its authority in barring all U.S. citizens from interacting with the privacy tool.

The six plaintiffs are Coinbase employees Tyler Almeida and Nate Welch, former Amazon engineer Joseph Van Loon, Ethereum proponent and angel investor Alex Fisher, GridPlus engineer Kevin Vitale, and Prysmatic Labs co-founder Preston Van Loon.

Coinbase is backing the efforts as well as funding the costs (legal fees) associated with the lawsuit against the Treasury Department over its decision to sanction a program that enabled users to hide their transaction history, increasing privacy on what is otherwise an open and transparent blockchain.

All six plaintiffs stated that in the past, they used Tornado Cash for legitimate purposes and have been financially damaged by the sanctions.

“None of the plaintiffs is a terrorist or a criminal. None support terrorism or illegal activity. None launder money. Each is an American who simply wants to engage in entirely lawful activity in private,” lawyers for the Tornado Cash users said in the complaint, filed in the U.S. District Court for the Western District of Texas.

The lawsuit argues that Treasury overstepped its authority by sanctioning software, rather than a person or an entity. It then claims the department infringed on the plaintiffs’ First Amendment rights by prohibiting them from using a tool that enabled them to exercise their free speech.

The suit asserts that the Treasury Department’s Office of Foreign Assets Control (OFAC) didn’t have the legal right to sanction Tornado Cash, which the lawsuit refers to as “a decentralized, open-source software project that restores some privacy for Ethereum users,” because it (the software) isn’t an entity, person, or organization.

All of the plaintiffs have some Ether (ETH) locked in Tornado Cash that they used for various legal purposes – including giving donations to Ukraine and protecting their private wallets from being traceable to their public online identities. They said now they cannot access their funds because of the OFAC’s sanctions, the suit said.

Besides the Treasury, the plaintiffs are suing Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki.

In an interview, Coinbase general counsel Paul Grewal said the firm has a “unique responsibility to support that cause given our role in the crypto ecosystem.”

Grewal further added: “The Treasury Department has other means at its disposal to target bad actors using the program to cover their digital tracks. We have a ton of respect for the Treasury’s role here, but they, too, must act according to law.”

Early last month, as reported by Blockchain.News, Treasury’s OFAC accused Tornado Cash of laundering over $7 billion of cryptocurrencies since its creation in 2019.

The watchdog sanctioned crypto wallets associated with the crypto mixer and related code known as smart contracts.

According to the regulator, Tornado Cash had become a preferred tool for North Korean hackers and other illicit actors to launder billions of dollars’ worth of digital tokens.

US Treasury Updates FAQ on Sanctioned Tornado Cash

US regulator said a specific license must be obtained from the Office of Foreign Assets Control (OAFC) and provide information in detail with necessary verification for those Tornado Cash’s users who have funds locked up on the platform to complete transactions.

Since the digital currency mixer Tornado Cash was sanctioned by the United States Treasury Department’s Office of Foreign Assets Control (OFAC), a number of controversies have emerged as it relates to the allowance of Americans who may want to associate with the wallet.

According to the updated FAQ published by the Treasury Department, some of Tornado Cash’s users who have funds locked up on the platform may still be able to complete their transactions. The regulator said to complete these transactions, a specific license must be obtained from the OFAC. Detailed information about the transactions must be provided for all necessary verification.

The Treasury Department also assured the public that no one will be prosecuted for sharing the codes of Tornado Cash and that they can be used in an educational setting.

“U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts,” the FAQs posted on September 13 reads.

There has been a lot of controversy surrounding the Tornado Cash sanctions, with protests and lawsuits filed by industry stakeholders. In one of such lawsuits being bankrolled by Coinbase Global Inc, the argument put forward is that the sanction of a piece of code can set a bad precedent for the broader tech ecosystem.

With many demanding the release of Alex Pertsev, the core developer of the Tornado Cash protocol, a lot of people have reacted in fear of facing related sanctions. This fear fueled the withdrawal of funds from the wallet as data shows deposits on the platform dropped by as much as 80% a few days after the sanctions were pronounced.

The recently published insights in the FAQs are targeted to offer many people clarity on the grey areas that were otherwise left unaddressed with the sanctions.

US Treasury Imposes Sanctions on Iranian-Linked Ransomware Gang

The United States Treasury Department, through the Office of Foreign Asset Control (OFAC), has updated its sanctions list with new targets focusing on ransomware gangs affiliated with the Iranian military. 

Specifically, the OFAC sanctions list included as many as ten individuals and two companies affiliating with Iran’s hacking and cybercrime activities. According to the US Treasury, almost all of the individuals sanctioned are known to have defrauded some American entities in the past.

“This IRGC-affiliated group is known to exploit software vulnerabilities in order to carry out their ransomware activities, as well as engage in unauthorized computer access, data exfiltration, and other malicious cyber activities,” Treasury’s announcement said. 

The sanctions meted out also included 7 Bitcoin (BTC) addresses, a move that reinstates the US’s stance against using crypto by the Iranian government.

The United States Treasury Department has come under the radar recently as the regulator has intensified its enforcement actions against crypto-linked cybercriminals. Beginning with the sanctions placed on Blender.io cryptocurrency mixer back in May this year on account that it was linked to the North Korean cybercriminal ring, Lazarus Group.

The Treasury Department also placed Tornado Cash on its sanctions list, claiming that as much as $7 billion has been laundered through the crypto mixer since it was created. The Tornado Cash sanctions have raised a lot of uproars as industry stakeholders faulted the Treasury Department for sanctioning a piece of code, setting an unhealthy precedent for the industry.

The regulator has been dragged to court on this matter, and the major digital currency trading platform, Coinbase Global Inc, is named as one of the entities bankrolling the lawsuit. While this is a very rare antagonism to the powers of the US treasury, the argument is a testament to the solid conviction and solidarity in the crypto ecosystem to protect some of its most ingenious privacy protocols.

US Treasury Fines Bittrex Exchange $29m for Multi-Year Sanctions Violation

Washington-based cryptocurrency trading platform, Bittrex Has been fined the sum of $29 million by the United States Treasury Department through the Office of Foreign Assets Control (OFAC) and the Financial Crimes Enforcement Network (FinCEN). 

The fone, tagged as the single largest levied by the OFAC on a digital currency trading platform, became necessary, considering Bittrex failed to implement adequate compliance programs, thus helping some of its users to evade established sanctions. 

According to the OFAC announcement, the trading platform “failed to prevent persons apparently located in the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria from using its platform to engage in approximately $263,451,600.13 worth of virtual currency-related transactions between March 2014 and December 2017.”

The regulator noted that preventing these banned users would have been easy if the exchange prevented their registration based on their IP addresses at the point of registration. The FinCEN violation involved failure on the part of the trading platform to institute appropriate Anti-Money Laundering (AML) measures, thus creating a weak channel for the laundering of illicit financial proceeds.

“When virtual currency firms fail to implement effective sanctions compliance controls, including screening customers located in sanctioned jurisdictions, they can become a vehicle for illicit actors that threaten U.S national security,” said OFAC Director Andrea Gacki. “Virtual currency exchanges operating worldwide should understand both who—and where—their customers are. OFAC will continue to hold accountable firms, in the virtual currency industry and elsewhere, whose failure to implement appropriate controls leads to sanctions violations.”

The US Treasury has been more alive towards cryptocurrency service providers all year long, first coming into the limelight in May when it banned crypto mixer, Blender.io and subsequently when it added Tornado Cash to its list. 

While the industry made no fuss about the Blender ban, that of Tornado Cash has been received with so many objections, all of which have spurred industry giants like Coinbase Global Inc to fund targeted lawsuits and advocacy stunts.

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