The FBI said North Korean hackers used crypto mixer alternative Railgun to launder $63.5 million stolen from Harmony's Horizon Bridge — which it cited in sanctioning Tornado Cash.
The FBI has confirmed that North Korean hackers used crypto mixer alternative Railgun to launder more than $60 million stolen from Harmony's Horizon Bridge last year.
Which leads to one very obvious question: will it be the next target of crypto sanctions by the Treasury Department's Office of Foreign Assets Control (OFAC)?
In the Jan. 23 announcement, the FBI said "North Korea's theft and laundering of virtual currency … is used to support North Korea's ballistic missile and weapons of mass destruction programs."
The Harmony-Railgun connection was first revealed last week by on-chain sleuth ZachXBT, who revealed that $63.5 million had passed through the privacy service. Binance CEO Changpeng "CZ" Zhao tweeted that the exchange had helped competitor Huobi seize more than $2.6 million in stolen funds. CoinMarketCap is owned by Binance.
The FBI said that two North Korean government-sponsored hacking groups, the Lazarus Group and APT38, were involved in the Harmony hack.
Crypto Sanctions
In August, OFAC broke new ground by imposing sanctions on the Tornado Cash mixing service, a fully DAO-controlled decentralized finance project that became the first-ever piece of software hit with sanctions, which had previously only been imposed on people or businesses — which are legally "people."
In doing so, OFAC cited the use of Tornado Cash by Lazarus Group hackers, to launder part of the $100 million stolen in June's Harmony Protocol hack.
While the Aug. 8 OFAC announcement cited the laundering of $455 million of the $620 million stolen from Axie Infinity's Ronin Network hack, it also said:
"Tornado Cash was subsequently used to launder more than $96 million of malicious cyber actors' funds derived from the June 24, 2022 Harmony Bridge Heist."
Tornado Cash sanctions were preceded by the May 6 designation of virtual crypto mixer Blender.io.
At the time of the Tornado Cash announcement, Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian Nelson warned that OFAC would "continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them."
Tornado Cash developer Alexey Pertsev, is being held without bail in The Netherlands, where he is facing money laundering charges for his involvement in building Tornado Cash.
Coinbase is funding a lawsuit by crypto industry groups challenging the designation on the grounds that software has generally been seen as Constitutionally protected writing.
A Growing Problem
Another factor to consider is blockchain intelligence firm Chainalysis' revelation last week that some $8.8 billion in crypto transactions were involved in sanctions violations this year. While the vast majority of those involved sanctions imposed after Russia's invasion of Ukraine, both the Justice Department and Treasury Department certainly were aware of that 10 million percent spike over 2021 far earlier.
Unlike a traditional mixing service, Railgun does not seek to obfuscate transactions by mixing multiple transactions together. Instead it uses zk-SNARKS cryptography to make "transactions fully invisible," the service's website said. Railgun Project's website added:
"Every transaction appears on the blockchain as being sent from the Railgun contract address."
