Elliptic Connect Weekly: OFAC’s FAQs on Tornado Cash
Rug Pulls and NFTs?
Rug pulls are scam projects that encourage investors to buy into a project with fake promises and roadmaps – only to disappear and transfer out all the invested funds when scammers feel they have collected enough money. There have been several notorious rug pulls that have claimed more than $1 million and are still widely discussed across the NFT community.??
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NFTs and Financial Crime: the Art of Crypto Compliance?
Non-fungible tokens (NFTs) are one of the most rapidly growing crypto innovations. The total value of NFT trading has eclipsed $40 billion – rocketing up from $200 million in 2020. Once merely for crypto hobbyists, NFTs have burst onto the radar of corporates and financial institutions, with some of the world’s largest companies integrating NFTs into their marketing strategies. And, as David Carlisle explains, compliance officers need to understand the rapidly evolving NFT market and the implications for their risk management programs.
?Elliptic Launches User-centered Design Research Panel?
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Our products are constantly evolving, and the best way we can continue to develop our solutions is to work with people in governance, risk and compliance who are either already working in the crypto industry or are thinking about doing so. That is why we are announcing a new user-centred design initiative – requesting the help of our Connect readers. We’d like to invite you to join our research panel to explore these issues and help us to understand how you do the things you do.
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We are very proud of Liat Shetret, Director of Global Policy and Regulation at Elliptic who was chosen? as testifying expert for a hearing before the US House Committee on Financial services on Wednesday 14th September, to talk about the impacts of de-risking (when banks leave) on the Caribbean and strategies for ensuring financial access, including blockchain.
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We are pleased to announce that Elliptic has welcomed on board Jackson Hull as Chief Technology Officer and appointed John Melican as Chief Legal Officer.
David Carlisle ?Vice President of Policy and Regulatory Affairs at Elliptic posted some insights on #OFAC publishing an FAQ on its recent designation of the Tornado Cash mixer. ???
? OFAC indicates that anyone who sent funds to Tornado Cash before the sanctions were announced on August 8, but who received mixed funds afterwards, can apply for a specific license from OFAC to unblock and engage in further transactions with those funds. OFAC also suggests it will adjudicate those applications favourably if no other sanctionable conduct is present. Presumably this applies to a relatively small number of transactions, but good to know that legitimate users of Tornado who used it immediately before designation can have their funds unblocked at any exchanges that might have (very reasonably) blocked them. Good on OFAC for this. ??
?? On dusting attacks: OFAC says its regulations technically apply to transactions where people received unsolicited funds from Tornado Cash via dusting attacks. However, OFAC notes that, so long as no other sanctions nexus is present, it won't prioritize enforcement if reports of blocked property are filed late. This would suggest dusting attack victims - or exchanges holding their funds - still do ultimately face an expectation to block and report, though. Seems like a genuine attempt by OFAC to show reasonableness, but that they also want to make sure their bases are covered. ??
?? OFAC states that the sanctions do not prohibit US persons from copying the source code and making it available to others to view. The sanctions also don't prohibit US persons from viewing the Tornado Cash website, should it be revived (it was deleted after the OFAC sanctions went into place). ??
This last point is an interesting one. It's a very important clarification for academics and developers who might want to continue to access the code for a variety of purposes . . . but it's likely also directed at signalling to the courts, in light of the recent lawsuit backed by Coinbase, that OFAC had no intention of sanctioning the code or restricting free speech by undertaking this designation. ??
Check out some of our recent analysis of the Tornado Cash sanctions over at Elliptic Connect: here
Understand the impact of crypto on sanctions evasion
BREAKING NEWS
?? The US Treasury’s Office of Foreign Assets Control (OFAC) has today added six crypto wallet addresses to the Specially Designated Nationals (SDN) list related to two Iranian Nationals.
The Elliptic team has been quick to research and update our monitoring tools so that customers can immediately identify exposure to these sanctioned addresses.