OKX chief operating officer Star Xu warned account holders against Tornado Cash (TORN), saying any interaction with the platform would result in a ban.
In a statement posted on X, the CEO announced that any users who have been previously sanctioned will not be allowed to open new accounts on OKX. Moreover, per the statement, the crypto exchange will close down accounts of users making deposits from sanctioned entities such as Tornado Cash (TORN) and Garantex.
The move comes after an account holder on OKX, Satoshi Friends, told his followers on X that the exchange had blocked him from using the platform as a resulted of him having interacted with the Tornado Cash platform.
— Satoshi Friends 🌱 (@slezisatoshi) August 8, 2024#okx #urgent
ALL @okx EXCHANGE USERS ARE AT RISKSince 2019, I have been a partner of the OKX exchange, recommended it to you and actively used it myself.
Until today, it worked honestly and stably.
But today, I regret to admit that the exchange policy and all the… pic.twitter.com/fQiDRj6aHO
Tornado Cash was founded in 2019 by a group of Russian nationals based in Europe, Roman Semenov, Alexey Pertsev, and Roman Storm. Pertsev was sentenced in May 2024 to five years in prison for violating anti-money laundering laws due to transactions involving Tornado Cash. The entity specializes in a type of anonymizing cryptography that uses software to obfuscate the origins of cryptocurrencies deposited through the service, effectively redistributing deposits into an array of small transactions that are difficult to track.
Labeled as privacy coins, entities such as Tornado Cash, Monero and Zcash have all had their share of run-ins with regulators. Tornado Cash has been accused of laundering stolen funds for international criminal organizations and also its connections to Lazarus Group, an entity the US government has said is linked to funding North Korea’s nuclear program.
The move to block accounts linked to Tornado Cash on OKX comes as the exchange has faced a number of challenges of its own recently.
In June, Blockchain security firm Slowmist uncovered an SIM swapping incident on OKC that resulted in at least two users having their funds trained from the exchange, due in part to a flaw in its two-factor authentication (2FA) system, which led to unauthorized access to their accounts.
The security incident and others such as the collapse of FTX has shaken confidence in OKX, the fifth largest centralized crypto exchange by market-cap, with a daily trading volume of $1.48 billion.
OKX efforts to ban accounts associated with Tornado Cash bolsters their appeal to international regulatory bodies, such as the Securities and Exchange Commission and the Department of Justice, who in Nov. 2023 secured a plea deal from Binance co-founder and former CEO, Changpeng Zhao, who pled guilty to violating US anti-money laundering laws.
Earlier this year, the United States House of Representatives also proposed a bill dubbed the Blockchain Integrity Act, which proposes to outright ban crypto mixers for two years. Introduced by Democratic Party member U.S. representative Sean Casten, the bill aims to prohibit virtual asset service providers and other registered money service businesses from accepting funds routed through a mixer or allowing withdrawals directly to a mixer’s address. Any breach of this rule will incur a civil penalty of up to $100,000.
The House’s sentiment about Tornado Cash was also echoed by the European Union early this year, which voted in April to enforce the monitoring of non-custodial wallets and ban crypto mixers and privacy coins.
With the regulatory headwinds pointing towards a resolution—if not outright ban—on crypto mixers, entities such as Tornado Cash and exchanges that allow their tokens to be traded and listed are increasingly finding themselves trying to strike a balance between crypto’s need for privacy and the greater regulatory scrutiny that comes with it.