Bitcoin Rodney has been charged with operating an unlicensed money transmitting business and conspiracy to operate an unlicensed money transmitting business.
"Bitcoin Rodney" arrested in relation to Hyperverse scam
A crypto influencer known as "Bitcoin Rodney" was arrested by US authorities for his involvement in the HyperVerse crypto scam, which fleeced victims out of over $1 billion. In addition to promoting the scam, Bitcoin Rodney allegedly received more than $7.8 million directly from victims, which he exchanged for HyperVerse's $HU token. $5.8 million of this money was received after HyperVerse had disabled converting $HU to cryptocurrency, meaning that the victims never even had the opportunity to cash out their "investments".
- USA v. Rodney Burton criminal complaint [archive]
CoinList reaches $1.2 million settlement with OFAC over Russian sanction violations
The Californian cryptocurrency exchange CoinList has settled a lawsuit from the Treasury Departments Office of Foreign Assets Control (OFAC) for $1.2 million. OFAC charged CoinList for processing almost 1,000 transactions between April 2020 and May 2022 on behalf of residents of Crimea, a Ukrainian territory occupied by Russia in 2014 and sanctioned by the United States shortly after.
CoinList reportedly allowed 89 users to sign up for accounts on the platform, most of whom had stated that they were residents of Russia but provided addresses in Crimea.
- "OFAC Settles with CoinList Markets LLC for $1,207,830 Related to Apparent Violations of the Ukraine-/Russia-Related Sanctions Regulations", Department of the Treasury enforcement release [archive]
Treasury Department introduces proposal targeting crypto mixers
The U.S. Treasury Department introduced a proposal for new regulation that would require cryptocurrency mixers (also called tumblers) to up their recordkeeping and reporting processes. Needless to say, for a class of projects intended to help people anonymize their cryptocurrency transactions and make them more challenging for governments and others to track, this would somewhat undermine the whole point.
That seems to be the intention of the Treasury Department, who described mixers as primarily used for illicit money laundering "by a broad range of illicit actors, including state-affiliated cyber actors, cyber criminals, and terrorist groups".
Poloniex pays $7.6 million settlement for sanctions violations
A US entity that previously controlled the Poloniex crypto exchange has agreed to pay a $7.6 million fine to settle allegations that it violated US sanctions against Crimea, Cuba, Iran, Sudan, and Syria. The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) alleges that between January 2014 and November 2019, Poloniex allowed citizens in those jurisdictions to use the platform, despite knowing their locations thanks to KYC and IP address information. OFAC alleges that there were nearly 66,000 apparent sanctions violations, which amounted to more than $15 million in transactions.
Poloniex was a US-based crypto exchange founded in 2014, which in 2018 was purchased by Circle, who intended to get rid of the illegal activity for which it was known. However, when they discovered that the customers who used Poloniex no longer wanted to use it once they were subjected to scrutiny, they sold the platform to Justin Sun in late 2019, who relocated it to the Seychelles and shut down US operations. It appears that the OFAC fine will apply to the US entity most recently controlled by Circle, and not to Justin Sun's operation.
In August 2021, Poloniex also paid more than $10.3 million to settle allegations from the U.S. Securities and Exchange Commission that it had operated as an unlicensed exchange.
Kraken pays over $360,000 to settle violations of sanctions against Iran
The US cryptocurrency exchange Kraken settled charges from the Office of Foreign Assets Control (OFAC) alleging that they had violated sanctions against Iran. In the agreement, Kraken will pay $362,158.70 for the potential civil liability, and agree to commit $100,000 in various compliance controls.
The OFAC investigation was first revealed in July, in reporting from the New York Times.
- Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Payward, Inc. ("Kraken"), U.S. Department of the Treasury
Bittrex fined $29 million for sanctions violations
The U.S. Treasury Department announced fines against Bittrex, a U.S.-based cryptocurrency exchange. The Office of Foreign Assets Control (OFAC) announced a $24 million penalty against the company, and the Financial Crimes Enforcement Network (FinCEN) announced a $29 million fine. Both groups form parts of the Treasury Department. FinCEN said it would credit the fine to be paid to OFAC towards the total fine they imposed, meaning Bittrex will pay $29 million in total. According to the Treasury Department, the fines are the largest they've ever imposed on a virtual currency platform.
The OFAC sanction was imposed due to 116,421 reported sanctions violations in which Bittrex failed to prevent people in Crimea, Cuba, Iran, Sudan, and Syria from using their service. In total, these prohibited individuals performed more than $263 million in transactions on the platform.
The FinCEN fine was imposed due to "willful violations" of the Bank Secrecy Act's requirements pertaining to anti-money laundering (AML) and suspicious activity reports.
Tornado Cash added to U.S. sanctions list
The U.S. Office of Foreign Assets Control (OFAC) added Tornado Cash to its SDN list: a list of "Specially Designated Nationals And Blocked Persons" with whom U.S. individuals and organizations are prohibited from doing business.
Tornado Cash is the most prominent cryptocurrency tumbler (or "mixer") and has been used in a multitude of instances to launder proceeds from cryptocurrency hacks and scams. In a press release, the Treasury Department named the North Korea-sponsored Lazarus Group's $625 million hack of Axie Infinity in March, the $100 million theft from Horizon Bridge in June, and the $190 million hack of the Nomad bridge in August as contributing to the decision.
Although Tornado Cash had claimed to be complying with sanctions in the wake of the Axie hack, the Treasury Department wrote in their press release that, "Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks".
Tornado Cash is also widely used to maintain privacy in a world where transactions are publicly visible, and it remains to be seen how the cryptocurrency ecosystem will react to this major development. Tornado Cash is also relatively decentralized in its operations, meaning it may be difficult for the sanctions list to be kept up to date and for the sanctions to be enforced.
The fallout from the sanction was swift: in the days following the action, Tornado's source code repository was removed from Github and the accounts of some of its developers were suspended; the project's Gitcoin funding page was taken down; and the project's own website, governance pages, and Discord server went offline.
- Specially Designated Nationals List Update, U.S. Department of the Treasury
- "U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash", U.S. Department of the Treasury
OFAC has been investigating Kraken over suspected sanctions violations
The New York Times reported on July 26 that the Treasury Department's Office of Foreign Assets Control (OFAC) has been investigating major US-based crypto exchange Kraken for suspected sanctions violations. They reportedly believe that Kraken has been providing services to people in Iran and other sanctioned countries. The Times' sources have said that OFAC is likely to impose a fine on the company, which would make Kraken the largest crypto company to face enforcement from OFAC relating to the Iranian sanctions.
- "Kraken, a U.S. Crypto Exchange, Is Suspected of Violating Sanctions", The New York Times
U.S. Treasury sanctions cryptocurrency tumbler Blender, the first sanction of its kind
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced that they had sanctioned the North Korean cryptocurrency tumbler Blender.io. This was the first U.S. government sanction levied against a cryptocurrency tumbling service. Blender was used to launder more than $20.5 million of the $620 million stolen in March from the blockchain used by the play-to-earn game Axie Infinity. The U.S. government has alleged that the North Korean state-sponsored cybercrime group Lazarus was behind the hack.
The U.S. began sanctioning various wallet addresses belonging to the hackers in mid-April, though have faced obstacles given that it is trivial for the hackers to create new wallets. The use of cryptocurrency tumblers (also called "mixers") has also stymied the government's attempts to limit the DPRK's access to the ill-gotten funds. Blender is not the primary tumbler that Lazarus has been using — that would be Tornado Cash, which they have used to tumble more than $213 million from the hack. Tornado has taken perfunctory steps to comply with sanctions, but nothing that would meaningfully impact Lazarus' ability to use the service.
- "U.S. Treasury Issues First-Ever Sanctions on a Virtual Currency Mixer, Targets DPRK Cyber Threats", U.S. Department of the Treasury
Authorities link Axie Infinity hack to North Korean Lazarus hacking group
According to the FBI, the infamous cybercrime group Lazarus has been implicated in the March Axie Infinity exploit that saw $625 million taken from the game's blockchain bridge. Lazarus are a criminal group with strong ties to North Korea, and are suspected of being behind infamous cyberattacks including the WannaCry ransomware that impacted a wide number of industries including hospitals and manufacturing, as well as legislative and justice systems. The U.S. Treasury department has added the crypto wallet that received the stolen funds to its sanctions list, which may make it substantially harder for the attackers to withdraw the money. The wallet still contains around 150,000 ETH, valued at around $445 million, but has been slowly siphoning it out to various other wallets, exchanges, and tumblers over the past weeks.
- "Community Alert: Ronin Validators Compromised", Ronin Newsletter
- U.S. Department of Treasury announcement showing the sanctioned wallet address
- Attacker wallet on Etherscan