In a landmark ruling, a US federal court upheld the Treasury Department’s authority to impose sanctions on Tornado Cash, a cryptocurrency mixer. This decision comes in response to a lawsuit initiated by six users of Tornado Cash, challenging the government’s right to levy sanctions. However, U.S. District Judge Robert Pitman ruled in favor of the government on all counts, affirming the Treasury’s Office of Foreign Assets Control’s (OFAC) right to cite Tornado Cash under sanctions statutes.
Details of the Lawsuit
The plaintiffs, identified as Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, argued that the government’s action was unconstitutional, claiming it violated their First Amendment rights. They maintained that they were denied the ability to engage in “socially valuable speech” as they intended to use Tornado Cash to make donations to important political and social causes. Judge Pitman disagreed with this viewpoint, stating that the plaintiffs “have not shown that the government’s action in any way implicates the First Amendment.”
Tornado Cash Sanctions and their Implications
The Treasury Department had earlier added Tornado Cash to its Specially Designated Nationals and Blocked Persons List in August last year, accusing it of laundering more than $7 billion worth of virtual currency. This allegedly included facilitating transactions for North Korean hackers. The court upheld that Tornado Cash operates as an “association” that can be properly sanctioned as an entity under the International Emergency Economic Powers Act. Additionally, it was ruled that smart contracts deployed by Tornado Cash constitute “property” subject to sanctions under OFAC’s broad regulatory definitions.
Interestingly, Judge Pitman noted that the plaintiffs could have potentially made a case that their inability to access Ethereum trapped in a Tornado Cash smart contract pool violated the Fifth Amendment. However, the plaintiffs did not pursue this claim, effectively waiving it.
What’s Next?
Despite the ruling, Paul Grewal, chief legal officer at cryptocurrency exchange Coinbase, which supports the lawsuit, expressed that they “continue to believe Plaintiffs’ challenge to OFAC’s Tornado Cash action is right” and necessitates a Fifth Circuit appellate review.
The Treasury Department has reiterated that Tornado Cash was used to launder virtual currency for cybercriminals, including supporting North Korea’s regime. “OFAC determined that the DPRK’s malicious cyber-enabled activities threaten the United States and the broader international community and pose a significant threat to the international financial system,” the ruling highlighted.
With the evolving landscape of cryptocurrency regulations and the recent Tornado Cash sanctions, it’s crucial to stay informed about these developments. Platforms like cryptoview.io offer a comprehensive view of the crypto market, making it easier for users to navigate this dynamic space.
