In a first action of its kind, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Blender, which is used by the Democratic People’s Republic of Korea (DPRK) to support its malicious cyber activities and money-laundering of stolen virtual currency.
Blender is a virtual currency mixer that operates on the bitcoin blockchain and indiscriminately facilitates illicit transactions by obfuscating their origin, destination, and counterparties. Blender receives a variety of transactions and mixes them together before transmitting them to their ultimate destinations. While the purported purpose is to increase privacy, mixers like Blender are commonly used by illicit actors.
On March 23, 2022, Lazarus Group, a DPRK state-sponsored cyber hacking group, carried out the largest virtual currency heist to date, worth almost $620 million, from a blockchain project linked to the online game Axie Infinity; Blender was used in processing over $20.5 million of the illicit proceeds. Under the pressure of robust US and UN sanctions, the DPRK has resorted to illicit activities, including cyber-enabled heists from cryptocurrency exchanges and financial institutions, to generate revenue for its unlawful weapons of mass destruction (WMD) and ballistic missile programs.
Under Secretary of the Treasury for Terrorism and Financial Intelligence, Brian Nelson, said in a statement: “Virtual currency mixers that assist illicit transactions pose a threat to US national security interests. We are taking action against illicit financial activity by the DPRK and will not allow state-sponsored thievery and its money-laundering enablers to go unanswered.”
Jason Schwartz, partner in the Tax Group of Fried, Frank, Harris, Shriver & Jacobson, said in a commentary: “The Bitcoin blockchain does not support smart contracts, so Bitcoin mixers necessarily involve custodians, which are susceptible to sanctions. By contrast, Ethereum and other smart contract platform mixers typically are open-source protocols. It will be interesting to see how governments try to address noncustodial, readily replicable mixer protocols while weighing concerns about terrorism and tax evasion against their citizens’ desire for financial privacy.”