September 14, 2022

OFAC Issued Guidance on Virtual Currency Mixer Sanctions

Michael T. Gershberg Commentary by Michael T. Gershberg

OFAC issued four FAQs related to a previously sanctioned virtual currency mixer used in facilitating illicit activities for OFAC-sanctioned entities.

As previously covered, OFAC's sanctioning of the decentralized technology protocol (instead of an individual, group or entity) was the first of its kind. The virtual currency mixer was linked to several different criminal organizations and illicit activities, including (i) a heist carried out by a Democratic People's Republic of Korea state-sponsored cyber hacking group that stole $455 million and (ii) the laundering of a combined $104 million connected to two other virtual currency heists.

The new FAQs clarify specific actions that are prohibited pursuant to the designation of the virtual currency mixer and offer guidance to individuals who may have not been able to complete transactions on the protocol prior to its designation. According to the FAQs, interacting with the open-source code or the website of the protocol for educational purposes is not prohibited. OFAC also said that while transactions involving "dusting" (where "U.S. persons may have received unsolicited and nominal amounts of virtual currency or other virtual assets" from the mixer) would technically be subject to sanctions, it will not prioritize those enforcements.

OFAC said that all other transactions involving the sanctioned virtual currency are prohibited unless explicit permission is granted by OFAC. Possible exceptions to the prohibition include, but are not limited to, mixing transactions that were not able to be completed prior to the designation. OFAC emphasized that persons should be prepared to provide all relevant information and documentation pertaining to the transactions in order to gain an exception.

Commentary

To mitigate at least some of the confusion that surrounded OFAC's designation of Tornado Cash, OFAC issued a few discreet items of guidance. Most notably, OFAC will have a favorable licensing policy for applications to unblock virtual currency that was frozen due to the involvement of Tornado Cash. While individuals will still need to apply for a license, which is often a very slow process, at least there is a path to access the virtual currency. OFAC also confirmed that sanctions do not prohibit the publication of open source code, contrary to the fears of some in the crypto space.

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