March 29, 2024

TRM Labs called sanctions against Tornado Cash a challenge for compliance

TRM Labs called sanctions against Tornado Cash a challenge for compliance

Sanctions against the Tornado Cash mixer pose regulatory compliance challenges, especially in the case ofdust attacks. This was stated in the analytical firm TRM Labs.

The company offers OFAC and anti-money laundering compliance services for Uniswap, Aave, Circle and other firms.

The service helps track addresses and classify them by risk level, allowing you to exclude interaction with laundered funds and unscrupulous participants. 

The product also evaluates addresses for SDN presence. In the latter case, TRM Labs provides data on whether the wallet is sanctioned and whether it has a direct or indirect connection with such addresses.

TRM Labs emphasized that sanctions againstTornado Cash create uncertainty in the context of their compliance. This is the first time that OFAC has authorized a set of smart contracts instead of regular wallets. With the help of the latter, as a rule, it is easy to track completed transactions, however, in the case of smart contracts, this will become difficult.

“The complexity is created by the fact that virtually anyone whocontributes funds to Tornado Cash, interacts with smart contracts of the mixing service. Theoretically, he could send funds to Tornado Cash, and then transfer them to an address belonging to a random, unsuspecting person, ”- explained the company.

In fact, it has already happened. The day after the enforcement actions, one of the users of the mixer sent out 0.1 ETH each to popular industry representatives.

The list of recipients included the head of Coinbase BrianArmstrong, EthHub co-founder Anthony Sassano, crypto trader Loomdart, TV host Jimmy Fallon, YouTube blogger Logan Paul and Randy Zuckerberg, sister of Meta CEO, and Tron Foundation founder Justin Sun. The latter's wallet was briefly blocked at Aave, citing process automation.

Some community members have suggested that such a "distribution" of 0.1 ETH was a kind of protest against OFAC's actions.

TRM Labs explained that during "dust attacks"blockchain firms cannot reject transactions without any guidance from regulators. Compliance services will be forced to analyze transfers for compliance with the requirements in each individual case.

Recall that the decentralized derivatives exchangedYdX has suspended user accounts that have previously interacted with the mixer. The platform acknowledged that the sudden flood of locks affected "many users" who were often unaware of the origin of their funds and did not directly use the mixer.

On August 16, the Coin Center announced its intention to appeal the US sanctions against Tornado Cash, and the Ethereum community proposed a soft fork in opposition to OFAC.

Read about what Tornado Cash is and how it works in ForkLog educational cards.

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