[New York Federal Reserve Bank document states that Ethereum entities have generally complied with Tornado Cash sanctions]
A report from the Federal Reserve Bank of New York states that Ethereum block builders have mostly complied with sanctions against Tornado Cash. This report assesses the impact of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) blacklisting Tornado Cash. Tornado Cash is a mixer designed to support privacy by obfuscating the origin and destination of transactions, but was exploited by illicit actors, including North Korea, and was therefore subject to sanctions.
The report notes that block validators immediately downstream of a transaction may cooperate, especially following a court ruling in favor of sanctions, but nodes further away from the transaction’s origin are less likely to cooperate. In August 2022, the United States banned all Americans from trading with Tornado Cash. Tornado Cash developer Roman Storm is facing trial for his involvement in the project, and another developer, Alexey Pertsev, has been convicted on similar charges in the Netherlands.
The report highlights the impact of regulatory clarity on cooperation, noting that large-scale constructors shifted to a cooperative posture following the August 2023 court ruling in favor of OFAC, confirming that regulatory clarity is a key factor in cooperation.
The report also notes that these sanctions may not apply to non-U.S. persons outside the United States, so failure to cooperate does not necessarily mean a violation of sanctions. Nonetheless, reports show that Tornado Cash’s total value and transaction volume dropped dramatically during the measurement period, with only one entity responsible for the majority of blocks sending funds through mixers.
The report concluded that while Tornado Cash transactions were still settling, its ability to resist scrutiny was more fragile than trading volumes suggested.
