- New research shows that U.S. sanctions against crypto mixers effectively reduced illegal activity.
- The sanctions on Tornado Cash led to a 60% drop in monthly transaction volumes.
- Current legislative proposals may exempt certain decentralized protocol developers from anti-money-laundering (AML) and bank secrecy rules.
- Legal experts warn that loopholes could allow bad actors to redeploy similar crypto services.
- Some industry voices argue that protocols still remain subject to broader law enforcement efforts.
A research team led by Professor John M. Griffin from the University of Texas at Austin found that U.S. sanctions placed on crypto mixing protocols, such as Tornado Cash, significantly reduced illegal activity on these platforms. The report, which focused on the impact of sanctions and anti-money-laundering (AML) policies, confirmed that the sanctions were effective in blocking illicit financial flows through the protocol.
After the United States Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash for facilitating over $7 billion in illicit funds, the service’s monthly transaction volumes dropped by 60%. Cryptocurrency exchanges also quickly took action to prevent transactions linked to the protocol. The study concluded that these measures were costly for criminals.
“Our findings indicate that crypto asset freezes and anti-money laundering enforcement have been costly to criminals,” wrote Griffin and his colleagues in their report.
However, the specific sanctions on Tornado Cash were lifted in March. Legislative proposals under review in the Senate Banking Committee include provisions that would exempt developers of certain decentralized protocols from traditional AML and bank secrecy requirements. If a developer launches a smart contract—self-executing software on the blockchain—and cannot alter it after deployment, they would not be classified as “money transmitters” and would fall outside of specific regulatory requirements. Centralized services or interfaces built on top of these protocols, however, would still be regulated.
Roman Storm, co-founder of Tornado Cash, was convicted of conspiracy to operate an unlicensed money transmitting business in August. Founders of the similar mixing service Samourai also pleaded guilty to the same charge. Some experts say these new legislative changes could have protected developers like Storm from prosecution if enacted earlier.
Yet legal critics—like Lee Reiners, a lecturer at Duke University—worry the rules may make it easy for new illicit mixers to emerge. “There’s nothing to stop it,” said Reiners, noting that the draft legislation contains no specific safeguards against redeployment of similar services.
Others, including Ari Redbord from TRM Labs, warned that not being classified as a money transmitter does not mean protocols are above the law. “These bills should aim to protect lawful developers, not launderers,” he stated.
While former President Donald Trump’s crypto advisor set a deadline for passing market structure rules in September, legislators are expected to take more time to finalize new regulations. Many of the legislative details remain under discussion.
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