OFAC Sanctions Virtual Currency Mixer Used in Illicit Activity
Commentary by Jason Schwartz
OFAC sanctioned a virtual currency mixer responsible for laundering stolen money and contributing to other illicit activities. This action represents the first-ever sanction issued to a virtual currency mixer.
According to Treasury, the mixer was linked to several different criminal organizations and illicit activities, including (i) connections to Russian-linked malign ransomware groups and (ii) a heist carried out by a Democratic People's Republic of Korea ("DPRK") state-sponsored cyber hacking group that stole $620 million of Bitcoin. The mixer has facilitated the transfer of over $500 million in Bitcoin since its inception. Treasury stated that the mixer "indiscriminately facilitates illicit transactions" due to its ability to obfuscate the "origin, destination, and counterparties" of a transaction.
The mixer was designated pursuant to E.O. 13694 for engaging in cyber-enabled activities that are reasonably likely to result in a significant threat to the national security, foreign policy, economic health or financial stability of the United States.
In addition, OFAC (i) added the virtual currency mixer to the Specially Designated Nationals and Blocked Persons List and (ii) made updates to include other virtual currency addresses used by the DPRK state-sponsored hacking group.
Commentary
The Bitcoin blockchain does not support smart contracts, so Bitcoin mixers necessarily involve custodians, which are susceptible to sanctions. By contrast, Ethereum and other smart contract platform mixers typically are open-source protocols. It will be interesting to see how governments try to address noncustodial, readily replicable mixer protocols while weighing concerns about terrorism and tax evasion against their citizens' desire for financial privacy.