Tornado Cash Ban May Not Stop Bad Actors but Could Put a Dent in Their Efforts, Former DEA Agent Says

William Callahan joined CoinDesk TV’s “First Mover” to discuss the Treasury Department’s sanctioning of the mixing service.

AccessTimeIconAug 10, 2022 at 3:07 p.m. UTC
Updated May 11, 2023 at 6:38 p.m. UTC
AccessTimeIconAug 10, 2022 at 3:07 p.m. UTC
Updated May 11, 2023 at 6:38 p.m. UTC
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The U.S. Treasury Department’s sanctioning of mixing service Tornado Cash sounds the alarm that the U.S. is taking mixers seriously, according to retired Drug Enforcement Agency (DEA) agent William Callahan.

Callahan, who now works as the director of government and strategic affairs at software company Blockchain Intelligence Group, told CoinDesk TV that while the ban may not completely stop cryptocurrency money laundering, it sends a bigger message and at least “will put a great dent into their operations.”

On Monday, the mixer was added to the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list for allegedly aiding and abetting the laundering of more than $7 billion worth of cryptocurrencies.

In a statement, the Treasury Department said the mixer was used by North Korean hacking group Lazarus Group to steal $455 million through several exploits, including $7.8 million laundered via Nomad’s crypto bridge last week.

Under the department's new designation, all Americans are banned from being able to send or receive money on the platform and could face criminal penalties for violating the rules.

Callahan suggested the move, though harsh, represents a new regime for U.S. regulators who combat financial crime. Armed with new analytics tools, law enforcement agencies are better able to track bad actors and beat them at their own game, he said.

The ban, however, could be hard for officials to completely implement, Callahan said.

“The bad guys have an advantage over law enforcement,” he said, including “money to come up with different techniques” to evade surveillance systems.

Tornado Cash, which is built on the Ethereum blockchain, lets users accept token deposits from one address and make withdrawals using a different address. Effectively, it means the platform mixes coins, making it harder to track which transactions are being used for criminal activity.

The non-custodial mixer, like crypto, is built around pseudo-anonymity, which poses concerns for officials, too. And because the platform is open source, the question of whether the code will be duplicated at different Ethereum addresses remains unclear.

Callahan emphasized that the mixer is a “threat to national security.” And while it may not be the first time U.S. officials implement such measures to “affect financial flow,” it may be a period for platforms to slow down and review their current transaction processes.

As many others have, Callahan noted the sweeping ban affects users of the platform who rely on the protocol for legitimate reasons. That includes people around the world under autocratic regimes, or everyday crypto users who choose not to reveal their transaction history.

Elliptic, a blockchain analytics company, found that only $1.5 billion in crypto tied to illicit acts moved through the platform – not the $7 billion figure the U.S. government cited.

Callahan acknowledges that while there are places around the world where users need privacy, in the U.S. at the present moment, “the government has a responsibility to take action when they see that this could pose threats to national security.”


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