US Treasury Adds to Tornado Cash Sanctions With North Korea WMD Allegations

The U.S. Treasury Department is "redesignating" Tornado Cash as a sanctioned entity, overtly alleging that North Korea has used the crypto mixing service to support its weapons of mass destruction (WMD) program.

The Treasury Department's Office of Foreign Asset Control (OFAC) said Tuesday it would delist and redesignate the privacy tool, which pools transactions to obfuscate senders and recipients, on allegations that North Korea has laundered over $100 million worth of crypto through Tornado Cash to support its WMD program, including the development of ballistic missiles. The sanctions watchdog first designated Tornado Cash in August of this year.

"This action is part of the United States’ ongoing efforts to limit the DPRK’s ability to advance its unlawful weapons of mass destruction (WMD) and ballistic missile programs that threaten regional stability and follows numerous recent DPRK ballistic missile launches, which are in clear violation of multiple United Nations (UN) Security Council resolutions," a Treasury press release said.

North Korea has fired a number of its missiles in recent months, prompting panic in Japan and South Korea, as the missiles flew in their general direction, though no missile hit land.

In addition to Tornado Cash, OFAC sanctioned North Korea's national flag airline, Air Koryo, and two individuals the watchdog said helped North Korea transfer missile parts into the country.

In a statement, Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson said, "today’s sanctions action targets two key nodes of the DPRK’s weapons programs: its increasing reliance on illicit activities, including cybercrime, to generate revenue, and its ability to procure and transport goods in support of weapons of mass destruction and ballistic missile programs."

'Entity' designation

OFAC also published a new frequently-asked-question to address longstanding questions about who, exactly, was being added to its Specially-Designated Nationals (SDN) list. Much of the crypto industry has argued that Tornado Cash and its wallet addresses are software, not a person or entity, and so OFAC should not be able to designate the mixer as a sanctioned entity.

Lawsuits funded by Coinbase and Coin Center included this argument, as well as alleging that the Tornado Cash designation was overly sweeping and hurt Americans who had funds locked on the platform. OFAC previously published guidance for U.S. persons, detailing a process they could take on to try and recover their funds by applying for a specific license.

In its new FAQ, Treasury pushed back against this argument, saying an entity could be "a partnership, association ... or other organization."

Tornado Cash is an entity under the definition created by the executive orders overseeing sanctions, OFAC said. The organizational structure includes both Tornado Cash's founders and developers, as well as the decentralized autonomous organization (DAO) that votes on new features.

"Tornado Cash uses computer code known as 'smart contracts' to implement its governance structure, provide mixing services, offer financial incentives for users, increase its user base, and facilitate the financial gain of its users and developers," OFAC said.

The watchdog noted that Tornado Cash's founders, DAO members and users were not sanctioned "at this time."

UPDATE (Nov. 8, 2022, 20:20 UTC): Adds additional context.