NewsCryptoKraken Says Dust Attack From Sanctioned HTX Wallet Locked Out Customers

Kraken Says Dust Attack From Sanctioned HTX Wallet Locked Out Customers

Author: Bitcoin Magazine·

Key Takeaways

  • Some Kraken customers were briefly locked out of their accounts after receiving tiny amounts of sanctioned cryptocurrency in a dust attack, a tactic that sends small sums to many wallet addresses.
  • Kraken said its compliance team quickly restored customer access while continuing to hold the sanctioned funds as required, and that it is working with authorities.
  • Bloomberg, citing Arkham Intelligence, reported that 12,000 transfers were sent this month from a wallet linked to HTX to addresses associated with Kraken, with the wallet identified through HTX's publicly disclosed proof-of-reserves addresses.
  • The European Union sanctioned HTX, formerly known as Huobi, in July for allegedly helping Russians evade sanctions.
  • A similar 2022 dusting sent Ethereum from a Tornado Cash wallet to celebrities including Jimmy Fallon, Logan Paul, and Brian Armstrong, and federal authorities said they would not prosecute the recipients.
Kraken Says Dust Attack From Sanctioned HTX Wallet Locked Out Customers

Crypto exchange Kraken said some customers were briefly locked out of their accounts after receiving tiny amounts of sanctioned digital coins in what the company described as a “dust attack.”

In a statement to Bitcoin Magazine, Kraken said the coins were transferred in a dust attack, a tactic in which very small amounts of cryptocurrency are sent to numerous wallet addresses in an effort to track and de-anonymize them. On public blockchains, anyone can send funds to any address and recipients cannot refuse an incoming transfer, which is why such unsolicited deposits are difficult to stop before they land.

Kraken said the purpose of the transfers was to trigger compliance checks by spreading sanctioned funds onto other platforms. Bloomberg first reported the news.

“We don’t know who is behind these attacks, but they likely expect that if sanctioned funds land in a client account, it triggers a full account lock, causing operational disruption for a large number of users,” a Kraken spokesperson said.

Crypto exchanges, like other financial firms, generally operate under sanctions rules that require them to screen for and block funds tied to sanctioned parties, which can force account reviews when such funds arrive unsolicited.

The spokesperson said customers were briefly locked out of their accounts, but Kraken’s “compliance team mobilized quickly to restore access while continuing to hold the sanctioned funds as required.”

“We are working with authorities to ensure these attacks don’t have their intended impact,” the statement added.

Bloomberg, citing Arkham Intelligence, reported that a total of 12,000 such transfers were sent from the wallet to addresses linked to Kraken this month. Arkham identified the wallet as linked to HTX based on addresses the exchange has publicly disclosed as part of its proof of reserves, a transparency practice in which exchanges publish on-chain wallet addresses so customers can verify the platform holds the assets backing their balances.

HTX, formerly known as Huobi, is one of the world’s largest crypto exchanges. The European Union sanctioned the exchange in July, saying it had helped Russians evade sanctions.

“Recent dust attacks from HTX-owned wallets appear to be an attempt to spread UK- and EU-sanctioned funds to other platforms in order to discredit the broader industry,” the Kraken spokesperson said.

Dusting has occurred for years. In 2022, someone sent celebrities Ethereum from a Tornado Cash wallet one day after the U.S. Treasury Department sanctioned the coin-mixing app used by North Korean state-sponsored hacking groups.

Celebrities targeted in that 2022 dusting attack included comedian Jimmy Fallon, YouTuber Logan Paul, and Coinbase CEO Brian Armstrong. Federal authorities said they would not prosecute the celebrities who received the sanctioned crypto.

This article first appeared on Bitcoin Magazine and is written by Mathew Di Salvo.