Kraken briefly locked some customers out of their accounts after wallets tied to sanctioned exchange HTX sent nearly 12,000 tiny transfers to Kraken-linked addresses between Aug. 17 and Aug. 24. The exchange says the transactions were designed to spread sanctioned funds and trigger account restrictions, and it restored access while continuing to hold the funds.
A flood of tiny transfers
Wallets labeled by Arkham Intelligence as belonging to HTX — a rival exchange under European Union sanctions — sent nearly 12,000 low-value transfers to Kraken-linked addresses. Each transaction was valued from a few cents to a few dollars, according to Kraken.
Arkham data shows the transfers moving from HTX wallets to other exchanges between Aug. 17 and Aug. 24, though these could have been initiated by users. Kraken said the activity appeared designed to spread sanctioned funds across other platforms and trigger account restrictions once the assets landed in customer deposit addresses.
According to Kraken: "if sanctioned funds land in a client account, it triggers a full account lock", the exchange said in a statement shared with CoinDesk.
Kraken restores access, HTX disputes involvement
Some Kraken customers were briefly locked out on the first day the activity was noticed. The exchange said its compliance team restored access while continuing to hold the sanctioned funds, and it is working with authorities to keep the attacks from having their intended impact.
HTX, which counts TRON blockchain founder Justin Sun as an adviser, said an internal review found no official accounts responsible for the microtransactions. In a post on X, the exchange said it was investigating whether the sending wallet was misidentified or a third party was responsible.
Sanctions pressure builds on HTX
The tactic, known as a dust attack, turns sanctions screening into a form of offense: public blockchains let anyone send crypto to any address, so an attacker can link sanctioned funds to an unrelated user for little cost. The U.K. sanctioned HTX in May, freezing assets after authorities said they had reasonable grounds to suspect the exchange provided financial services to Russia-linked payment network A7 and sanctioned exchange Garantex. HTX has rejected the U.K.'s allegations.
The European Union added HTX to a transaction ban in July as part of a wider crackdown against Russia, and that EU ban took effect on Aug. 23, while the transactions were still occurring.
It isn't the first time sanctioned crypto has been used against others. In 2022, an unidentified sender sent ether from sanctioned mixer Tornado Cash to a number of celebrities, and U.S. authorities later said they would not prioritize enforcement over delayed reports from recipients of unsolicited, nominal transfers.
Source: CoinDesk: Bitcoin, Ethereum, Crypto News and Price Data
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