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The US wants Tether to respect its move against Tornado Cash. Tether said compliance could be “highly disruptive”.

Earlier this month, the Treasury Department sanctioned Tornado Cash, a cryptocurrency mixer that conceals transactions between wallets. While action has raise concerns on how governments can regulate open source software, experts say it has also created compliance uncertainty for digital asset service providers.

An analysis of Luck has revealed that major companies have reacted differently to the actions of the US government, with leading stablecoin company Tether ignoring sanctions and choosing not to blacklist addresses holding Tether targeted by the Ministry of Finance.

“Businesses must take a risk-based approach,” said Ari Redbord, head of legal and government affairs at blockchain intelligence firm TRM Labs and a former Treasury official. “These companies are having to make decisions right now about compliance without a lot of guidance from regulators.”

Ministry of Treasury announced Sanctions on Tornado Cash on August 8, citing the software’s role in laundering more than $7 billion worth of virtual money since 2019, including $455 million stolen by the hacker organization North Korea’s infamous Lazarus Group.

In its decision, the Department’s Office of Foreign Assets Control added Tornado Cash to its list of specially designated citizens, along with 38 Ethereum addresses linked to alleged illegal activities. service use.

In addition to Ethereum, some of those wallets contain two different stablecoins: USDC, which is linked to the company Circle Internet Financial, and Tether. According to Yaya Fanusie, a senior associate fellow focusing on blockchain technology at the Center for a New American Security, the presence of stablecoins has created a clear compliance responsibility for Tether and Circle.

“They have to take some action,” he said Luck. “[They’re] central issuer, so [they] need to control it”.

In an August 9 blog post, Circle CEO, Jeremy Allaire Written that the company complied with the sanctions, with both Circle and the USDC issuing corporation, Center, blocking the addresses involved.

“Circle is a regulated company and is subject to sanctions compliance requirements, including blocking addresses associated with OFAC’s Tornado Cash designation,” a Circle spokesperson said in a statement. Father. Luck.

Luck independently verified that Circle had blacklisted the addresses, cross-referencing the OFAC sanctioned addresses with data from analytics firm Dune and Etherscan.

‘Highly disruptive’

Tether is another matter. According to information from Etherscan, two of the sanctioned addresses contain Tether, with one wallet containing $289,000.44 and the other containing $7,300. Tether is also not blacklisted.

In response to a request for comment from LuckTether points to one blog post as of today, states that they have neither blocked any secondary market addresses nor received instructions from OFAC to freeze any addresses. The post also added that Tether is not US, does not operate in the US or US people on board as customers.

“Unilaterally freezing secondary market addresses could be a very reckless and disruptive move by Tether,” reads the statement.

The Hong Kong-based company has long faced regulatory difficulties, including $41 million fines by the Commodity Futures Trading Commission for “making untrue or misleading statements” to customers, as well as criticism on the transparency of its holdings in support of its stablecoin.

While Tether suggests it has no legal obligation to comply with US regulations because it does not operate in the US, Fanusie said this is not the case.

“While in doubt there is a slight benefit because [Tether] not based in the US, I would say that for anyone who understands compliance and is dealing with financial institutions and money service businesses, it is clear that they need to act, “he said Luck. “The way OFAC sees it, for better or worse… is that you are under US jurisdiction because you are serving US companies, so you are subject to US financial regulations.”

‘Wide social implications’

Miller Whitehouse-Levine, policy director at the DeFi Education Foundation, said that under the International Emergency Economic Powers Act, under which sanctions are implemented, foreigners like Tether remain liable. facilitate Americans who are likely to violate the sanction designation.

While Whitehouse-Levine said companies are obligated to comply with OFAC sanctions, he argued that the regulation was uncharted territory, because it was the first time the US government had targeted it. focus directly on open source software, rather than individuals or organizations. Since Tornado Cash-related smart contracts cannot be taken down as long as the Ethereum network remains active, regulation takes a different approach.

“The effect of sanctions is not to try to change the behavior of foreigners, but in fact to ban Americans from using an open source software protocol,” he said. Luck.

According to Ari Redbord of TRM Labs, the sanctions have added confusion to regular Tornado Cash users looking for enhanced privacy for legitimate transactions, and the Treasury Department did not provide guidance. on how to avoid affecting these users. In turn, businesses like Tether have to decide for themselves.

Miller-Whitehouse said the regulation sets a troubling precedent beyond cryptocurrencies.

“It has broad societal implications for privacy and individual sovereignty, and do we agree to a foreign policy instrument that can be applied unilaterally without regulation,” he said. public process to correct American behavior”.

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