TRM Labs called sanctions against Tornado Cash a challenge for compliance

TRM Labs called sanctions against Tornado Cash a challenge for compliance

TRM Labs called sanctions against Tornado Cash a compliance challenge

Sanctions against the Tornado Cash Mixer create problems for compliance, especially in the case of “dust attacks”. This was stated by the analytical firm TRM Labs.

The company offers OFAC and anti-money laundering compliance services for Uniswap, Aave, Circle and other firms.

The service helps track addresses and classify them by risk level, allowing to exclude interaction with laundered funds and unscrupulous participants. 

The product also evaluates addresses for SDN presence. In the latter case, TRM Labs provides data on whether the wallet is sanctioned and whether it has a direct or indirect connection with such addresses.

TRM Labs emphasized that sanctions against Tornado Cash create uncertainty in the context of their implementation. This is the first time that OFAC has authorized a set of smart contracts instead of regular wallets. With the help of the latter, as a rule, it is easy to track completed transactions, however, in the case of smart contracts, this will become difficult.

“The difficulty is that virtually anyone who deposits funds into Tornado Cash interacts with the mixing service’s smart contracts. Theoretically, he could send funds to Tornado Cash, and then transfer them to an address belonging to a random, unsuspecting person,”, the firm explained.

In fact, it has already happened. The day after the law enforcement actions, one of the users of the mixer sent out 0.1 ETH each to popular industry representatives.

The list of recipients included Coinbase CEO Brian Armstrong, EthHub co-founder Anthony Sassano, Loomdart crypto trader, TV host Jimmy Fallon, YouTube- blogger Logan Paul and Randy Zuckerberg are the sister of Meta CEO and Tron Foundation founder Justine Sun. The latter's wallet was briefly blocked at Aave, citing process automation.

Some community members suggested that such a “distribution” of 0.1 ETH was a kind of protest against OFAC's actions.

TRM Labs explained that during “dust attacks” blockchain firms cannot reject transactions without any or instructions from regulatory authorities. Compliance services will be forced to analyze transfers for compliance in each individual case.

Recall that the decentralized derivatives exchange dYdX blocked the accounts of users who previously interacted with the mixer. The platform acknowledged that the sudden flood of locks affected “many users”, who often did not know the origin of their funds and did not directly use the mixer.

August 16, Coin Center announced its intention to appeal US sanctions against Tornado Cash , and the Ethereum community proposed a soft fork in opposition to OFAC.

For information on what Tornado Cash is and how it works, read the ForkLog educational cards.

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