The Treasury Department on Monday prohibited Americans from using the cryptocurrency platform Tornado Cash, saying the service has helped criminals launder more than $7 billion of virtual currencies.
The crackdown was the U.S. government’s latest effort to rein in the crypto industry, as lawmakers and regulators grow increasingly concerned over the volatility of virtual currencies and their role in facilitating hacking and other crimes. Calling the platform a “threat to U.S. national security,” the Treasury Department placed Tornado Cash on a blacklist of sanctioned entities, making it illegal for Americans to send or receive money using the service.
“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors,” Brian Nelson, the under secretary for terrorism and financial intelligence, said in a statement.
Criminals have long used virtual currencies to transact anonymously, exchanging digital coins for drugs or other illicit wares. But the anonymity of crypto doesn’t provide blanket security: Crypto transactions are recorded on publicly viewable ledgers called blockchains, allowing law enforcement officials to follow the money.
Platforms like Tornado Cash are designed to make that kind of tracking harder. These crypto “mixers” receive multiple streams of transactions, then combine them to obscure the origin and destination of the funds. According to the Treasury Department, Tornado Cash was used to launder more than $455 million in crypto stolen this year by North Korean-backed hackers called the Lazarus Group.
A message to Tornado Cash’s official Twitter account was not returned. Roman Semenov, one of the company’s three founders, did not respond to a request for comment.
Since its launch in 2019, Tornado Cash has risen to prominence largely because blockchain records show that hackers have used it to move stolen cryptocurrencies. In interviews, Mr. Semenov has defended the service, saying the software protects the privacy of legitimate crypto traders who could be targeted by kidnappers or thieves.
In a statement, the crypto advocacy group Coin Center criticized the Treasury Department’s announcement, arguing that Tornado Cash was a neutral platform “that can be put to good or bad uses like any other technology.”
“It is not any specific bad actor who is being sanctioned,” the statement said. “Instead it is all Americans who may wish to use this automated tool in order to protect their own privacy while transacting online.”
As the market for digital currencies has grown, the federal government has increasingly cracked down on crypto companies, which are lightly regulated. Tether, a stablecoin company, was fined last year by the Commodity Futures Trading Commission for misstatements about its reserves, while the Justice Department brought insider-trading charges last month against a former employee of Coinbase, the largest U.S. crypto exchange.
The cryptocurrency exchange Kraken is also under investigation by the Treasury Department for possible violations of U.S. sanctions.