Circle And Coinbase Restrict Movement Of Funds from Tornado Cash

Circle and Coinbase restrict movement of USDC funds from Tornado Cash, as announced by Circle co-founder and CEO Jeremy Allaire announced on Twitter.

This action was taken one day after the Office of Foreign Assets Control of the U.S. Department of the Treasury sanctioned the virtual currency mixer (OFAC).

Allegations that Tornado Cash had been used to launder more than $7 billion in cryptocurrency over the previous three years led to the sanctions.

Circle and Coinbase Restrict Funds Movement

Allaire made the point in his Twitter thread that Circle and its partner Coinbase were required by the Bank Secrecy Act (BSA) to take action to prevent users from dealing with the sanctioned addresses or risk penalties that may result in a 30-year prison sentence.

1/ Yesterday, US Treasury designated for sanctions ETH addresses associated with Tornado Cash. As a US regulated FI subject to Bank Secrecy Act (BSA) requirements, Circle, together with our partner @coinbase, restricted the movement of USDC funds in these sanctioned addresses.

— Jeremy Allaire (@jerallaire) August 9, 2022

Allaire claims that the actions OFAC took against Tornado Cash violated important legal precedents in the history of the internet and cryptocurrency finance. Never before has a significant government agency mandated that businesses restrict or ban the web-based functionality of open-source software protocols.

According to Allaire, OFAC’s actions cast doubt on the future of internet security and privacy as well as the viability of cryptocurrencies.

Taking Trust Seriously

The Circle CEO acknowledged in a subsequent blog post that the decision to comply with OFAC’s order to deny USDC access to the sanctioned Tornado Cash addresses created a moral conundrum for companies that provide services for digital assets.

He claimed that although following the law was necessary to combat illegal behavior, it unintentionally undermined the fundamental principles of privacy, trust, and personal security held by the crypto sector.

Allaire noted that regulatory bodies throughout the world were facing a tough challenge due to the quick emergence of self-governing, open-source protocols driven by blockchain and cryptocurrencies, which resulted in frequently crude and ineffective regulations to regulate the field.

Jeremy Allaire made a commitment on Twitter to bring together key players in the cryptocurrency industry to develop legal frameworks and rules that will safeguard users’ security and privacy while protecting the financial integrity of DeFi protocols.

On the Horizon: EU Regulations

Customers of Tornado Cash who are located in the EU are exempt from the OFAC fines, although using mixers will still be seen as a high-risk transaction under impending EU laws. It will be difficult to unplug assets from the cryptocurrency mixer, and they might be reported to financial regulators.

Users of crypto mixers will be required to justify their usage of the services before their assets may interact with regulated crypto platforms, according to crypto policy analyst Patrick Hansen. The objective of employing crypto mixers like Tornado Cash in the first place will be completely defeated by the new legislation, which would also require sending the personal information of users to supervisory authorities.

Check out the latest crypto news.