“Sometimes we are warned about potentially criminal addresses and specifically instructed not to freeze addresses without specific requests from law enforcement,” Teter says.
On Wednesday, US dollar stablecoin issuer Tether said it was using smart contract addresses included on the U.S. Office of Foreign Assets Office (OFAC) Specially Designated Citizens and Blocked Persons (SDN) list for the Trail Mixers Tornado Cash cryptocurrency were subject to sanctions. would not freeze. To justify his decision, Teter said:
“To date, OFAC has not indicated that the stablecoin issuer is expected to freeze secondary market addresses that are published on the OFAC SDN list or that are operated by individuals and entities under OFAC sanctions. In addition, no US law enforcement or regulatory agency has made such a request, although we are in almost daily contact with US law enforcement, whose requests always contain precise details.”
“Tether indicated that a one-sided freeze of wallets or smart contract addresses could be a “highly disruptive” and “reckless” move. “This could alert suspects to pending law enforcement investigation, result in liquidation or forfeiture of funds, and compromise further evidence,” the issuer said.
All US individuals and entities are prohibited from interacting with USDC and Ethereum smart contract addresses of the Digital Currency Mixer included in the SDN list, subject to severe criminal penalties for violations. However, Tether is a Hong Kong issuer and does not accept US citizens as customers or do business in the United States, although it voluntarily follows certain US compliance rules.
Tether also expressed doubts about the decision of dollar coin issuer Circle to unilaterally freeze Tornado Cash smart contract addresses earlier this month. “Without guidance from US authorities, USDC’s blacklisting of Tornado Cash smart contracts was premature and could potentially jeopardize the work of other regulatory and law enforcement agencies around the world,” says Tether. The firm notes that other US stablecoin issuers such as Paxos and Dai have not frozen Tornado Cash wallets. The sanctions came into effect on 8 August.