Is it true that there are no rules or regulations in place on the crypto market? People's perceptions of the cryptocurrency sector are greatly impacted by the negative connotations that are associated with it in certain regions of the world and in the media.
While it is true that many investors lost money in 2022 and earlier years, the activities of the Office of Foreign Assets Control (OFAC) are expanding every year. The US Department of Treasury's OFAC division imposes sanctions on entities, people, and countries under US foreign policy and national security objectives. In 2018, OFAC levied its first crypto-related sanctions in connection with two Iranians and the SamSam malware.
Then, in the following years, OFAC began penalizing more people, with 2019 having four sanctions (including those against Guanghua Zheng and Fujing Zheng) and 2020 having only nine sanctions (including Jiadong Li and Yinyin Tian).
While the original focus of these penalties was on people, Chainalysis reports that in 2021, OFAC started penalizing organizations, and in 2022, an average of 35 addresses were looked at for each sanctioned company.
Expanded Operations of OFAC
The Crypto Crime 2023 report states that by the end of 2022, OFAC was considering punishing a variety of crypto-related service types in addition to larger businesses. Some of the unique service categories and organisations targeted by OFAC are Tornado Cash, Hydra, and Guarantex.
Also, in order to lessen the impact of crypto crimes, OFAC works closely with international sanctioning agencies. The German Police Force and OFAC handled the case of the crimes committed utilising the Hydra platform, claims Chainalysis.
The Hydra server was seized and taken offline by April 2022 as it was involved in the sales of illegal drugs and money laundering activities.
The Outcome of OFAC Sanction
Chainalysis found that Hydra, Guarantex, and Tornado Cash each responded differently to the OFAC sanctions and other supporting organisations after taking a closer look at them. After the sanctions and designations as well as the seizure of the website by the authorities, the inflow of liquidity in the case of Hydra dropped to zero.
The outcome was the opposite for Garantex. The report claims that four months into Guarantex's sanctioning period, it had a monthly influx of $620.8 million, which grew to $1.3 billion. Chainalysis' explanation is that as Guarantex is a Russian platform and was not seized like Hydra, users were free to utilise it without being subjected to OFAC regulations.
Tornado Cash's performance was similar to the Hydra and Guarantex. Even though Tornado Cash's activity substantially decreased after it was approved, users still had access to it and used it. Tornado Cash's decentralised structure makes it challenging to seize or regulate, according to Chainalysis. It functions entirely autonomously and according to smart contracts.
Last but not least, Chainalysis discovered that the two factors that determine the outcome of sanctions imposed on illegal cryptocurrency sites are the jurisdiction and the underlying technology on which the platform is built.
The Bottom Line
The OFAC sanctions represent a tremendous opportunity for the public and commercial sectors to work together and talk about the need to identify dangers, develop cutting-edge, legally acceptable solutions, and uphold the core values of a fair, inclusive, and long-term Web3 ecosystem.
