- Federal court affirms the Treasury’s authority to impose sanctions on Tornado Cash, dismissing users’ First Amendment concerns.
- The mixer service is accused of laundering over $7 billion, with alleged ties to North Korean hackers.
Tornado Cash in Legal Turmoil
Sanctioning the Mixer: A Deeper Dive Amid the legal chaos surrounding cryptocurrency mixers, a federal court has confirmed the U.S. Treasury Department’s prerogative to sanction Tornado Cash. This decision comes as a rejection to the challenge proposed by several of its users.
Steering the court’s decision, U.S. District Judge Robert Pitman ratified the government’s stance in its entirety. He confirmed the Treasury’s Office of Foreign Assets Control’s (OFAC) entitlement to list Tornado Cash under pertinent sanctions statutes. In a twist, while the judge granted a summary judgment validating the sanctions, he simultaneously negated a similar judgment requested by the six users of Tornado Cash.
These users had anchored their challenge on the First Amendment. They claimed that the government’s intervention curtailed their “socially valuable speech,” as they intended to employ Tornado Cash for significant political and social donations. Contradicting this stance, Pitman noted that their claims lacked evidence that the government’s actions intersected with First Amendment privileges.
This legal maelstrom traces back to an earlier period when the Treasury Department marked the cryptocurrency mixing service on its Specially Designated Nationals and Blocked Persons List. Allegations abound that Tornado Cash had a hand in laundering an astonishing $7 billion in virtual currency. More critically, there are claims that it facilitated transactions for North Korean cyber attackers.
Diving deeper into the technicalities, Judge Pitman observed that Tornado Cash functioned as an “association.” This characterization permits it to be aptly sanctioned under the International Emergency Economic Powers Act. The court further interpreted that the smart contracts, a staple in blockchain technology, activated by Tornado Cash, fall within the definition of “property.” This makes them susceptible to sanctions under OFAC’s extensive regulatory purview.
Intriguingly, a potential avenue for the plaintiffs might have been challenging their inability to access Ethereum, a popular cryptocurrency, within Tornado Cash’s smart contract pool. This action could have been rooted in the Fifth Amendment, which defends against the unwarranted governmental seizure of property without just compensation. Nonetheless, this argument was not pursued.
Paul Grewal, the head legal officer at renowned cryptocurrency exchange Coinbase, vocalized their ongoing support for the plaintiffs. While the Treasury Department underscores Tornado Cash’s alleged role in cybercrime, including backing North Korea’s authoritarian regime, Grewal suggests that the legal battle is far from over.