U.S. changes sanction reasons on virtual currency service Tornado Cash

WASHINGTON (Reuters) – The U.S. Treasury has broadened its justification for sanctioning virtual currency mixing service Tornado Cash on allegations it supports North Korea, despite criticism from users that the Treasury is targeting a service and not an organization.

In a press release, the Treasury said its Office of Foreign Asset Control had “delisted and simultaneously redesignated” the service, changing its justification from the allegation that it supported North Korean hackers to the allegation that it supported the North Korean regime more generally.

The move – which a Treasury representative said reflected the service’s support for the North Korean government – still leaves Americans unable to send and receive money through the service.

The ban on Tornado Cash was first imposed in August on the grounds that the Ethereum coin mixing service – which can be and has been used to obscure the proceeds of cybercrime – was being used by hackers such as North Korea’s notorious Lazarus Group to launder stolen funds.

But the move had proven controversial in part because some argued that Tornado Cash was less an organization than a set of software. In a lawsuit filed this year, six Texan users of Tornado Cash said that Treasury officials had overstepped their jurisdiction by effectively blocking access to computer code.

“Tornado Cash is not a person, entity, or organization. It is a decentralized, open source software project that restores some privacy for Ethereum users,” the lawsuit said.

Cryptocurrency trading platform Coinbase backed the lawsuit, arguing in a blog post that the government had gone too far “by sanctioning an entire technology instead of specific individuals.”

What impact the redesignation might have on the lawsuit, if any, was not immediately clear.

Treasury also announced sanctions on two employees of North Korea’s state airline Air Koryo.

(Reporting by Raphael Satter; Editing by Josie Kao)