OFAC Designation of Virtual Currency Mixer Was 'Game Changer,' Expert Says

The Treasury Department’s designation of a virtual currency mixer this week was a significant step toward combating financial cyber crime, and could lead to more effective actions against cyber criminals, including those operating out of North Korea, former FBI analyst Nick Carlsen said, speaking during a Center for a New American Security event this week. Carlsen also said the U.S. should work closer with South Korea, including through sanctions coordination, to better target North Korean financial crime.

The Office of Foreign Assets Control’s designation of Tornado Cash was a “complete game changer,” said Carlsen, now a blockchain intelligence analyst at TRM Labs. OFAC said Tornado Cash has been used to launder more than $7 billion worth of virtual currency since it was created in 2019 (see 2208080031). “That was a thunderclap. That was really monumental,” Carlsen said of the designation. “Shutting down that avenue for criminals to launder money -- that's huge.”

He said he’s “really excited to see what further actions the government can bring to the table on this,” especially because the financial crime “threat environment” is “as bad as I think it has ever been.” He said the U.S. and South Korea should work together to better target North Korean financial crime, including through sanctions. “This next hurdle is this integration of the U.S. and the South Korean response there,” Carlsen said. “I'm hopeful. I think it's got potential.”

The countries in May agreed to create a cyber working group and better cooperate on cyber and cryptocurrency crime issues. They should use the group to better understand North Korea’s “cyber capacity” and identify its sources of funding, Kim So Jeong, a senior research fellow at the Institute for National Security Strategy, said during the CNAS event. She said this will help both countries better implement sanctions measures and improve the “effectiveness” of enforcement.

Carlsen agreed, saying more sanctions coordination is needed. “If anything can come out of this,” Carlsen said, “it should be that alignment on offensive collaboration.” He said the U.S. can better target their sanctions operations to “actually go after the North Korean cyber infrastructure itself” to “disrupt” their operations. “That's something that I'd like to see a lot more of,” Carlsen said.

But South Korea lacks some of the “brute strength” to impose its own set of sanctions, said Jason Bartlett, a CNAS expert. “Korea doesn't have unilateral sanctioning capabilities,” he said. “It complies with U.S. and U.N. sanctions, it can enforce them, but it doesn't have its own unilateral sanctioning and capabilities like the U.S. does.”

Although South Korea lacks sanctioning power, it has better “expertise and knowledge” about cybersecurity, Bartlett said, and the two countries can combine their strengths to better target North Korean cyber criminals and make sure South Korea can better enforce existing sanctions.