Advocacy group sues Treasury Department for banning Tornado Cash
The crypto industry fightback has begun.
Coin Center, a nonprofit advocacy organization representing the web3 industry in Washington DC, sued the US Treasury Department on Wednesday for sanctioning the smart contracts of the decentralized crypto-mixing protocol, Tornado Cash.
The Treasury Department’s Office of Foreign Assets Control, or OFAC, sent shockwaves through the crypto industry when it added Tornado Cash to its list of Specially Designated Nationals on August 8, marking the first time that this code has been added to the sanctions list.
The move made it illegal for Americans to interact with Tornado Cash smart contracts or addresses associated with the protocol, prompting Center, the consortium behind the USDC stablecoin, to blacklist 38 addresses holding USD 75,000.
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“The Biden administration has criminalized the use of Tornado Cash, an open-source software tool that helps Americans maintain their privacy while using cryptocurrency and related assets,” says page 36. court case.
The lawsuit, which was filed in the U.S. District Court in Pensacola, Florida, seeks to remove Tornado Cash from the sanctions list and block the Treasury Department from taking action against “ordinary Americans exercising their obvious and fundamental to privacy.
Challenging the federal government’s regulatory actions is a difficult task. Still, Coin Center’s move could rally the crypto community to defend the values that have long driven the industry’s business. Financial privacy, open source code sharing, and operating outside the confines of traditional banking and regulation are key drivers for the growth of the $1,000,000 industry.
“If this precedent is allowed, OFAC may add entire protocols like Bitcoin or Ethereum to the sanctions list in the future, effectively banning them immediately without any public process,” said Jerry Brito, executive director of Coin Center. tweeted. “That cannot go unchallenged.”
Coin Center argues that while privacy is normal for salaried employees and charitable donors in the context of the legacy economy, privacy is not the default on Ethereum unless users use a mixing service. like Tornado Cash to hide transactions.
The organization also argues that the International Emergency Economic Powers Act, which outlines the U.S. sanctions regime, clearly states that sanctions “may prevent U.S. persons from transacting with a foreign person or controlling foreign entity or the property of that person or entity”.
With Tornado Cash comprising code and not a person, Coin Center believes the Tornado Cash sanction has exceeded government regulatory authority.
“When we or our co-plaintiffs use the Tornado Cash tools, we do so as normal Americans who seek privacy,” the complaint states. “We do not engage in any transaction with any foreign person or entity or their property… At no time do we rely on any third party for these transactions and at no time do we deal with any sanctioned person.”
Co-plaintiffs in the lawsuit include the anonymous operator of the 688th Support Brigade – a volunteer organization that used Tornado Cash to collect donations to support Ukrainian soldiers, and Patrick O’Sullivan – a software developer who used Tornado Cash to maintain financial privacy, and David Hoffman of Bankless.
The lawsuit has received widespread support from the Blockchain Association and other social media crypto organizations.
“We appreciate the tough and difficult battles you are fighting on behalf of our industry,” tweeted Dylan Grabowski, editor of NEO News Today.
John Whelan, managing director of crypto and digital assets at Banco Santander in Madrid, said the Treasury Department failed to recognize Tornado Cash’s built-in compliance features. “A user can easily prove their source of funds if asked, and they ignored it” he job.
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Following the Tornado Cash sanctions, many crypto users feared that federal authorities would do nothing more than punish protocols that neglected to register tokens as securities – a longtime goal of the US Securities and Exchange Commission. United.
It seemed that the administration was determined to restrict the use of crypto-related software itself.
But some experts observed that the sanctions were aimed at targeting the North Korean state-sponsored hacking group, Lazarus, which used Tornado Cash to allegedly launder funds stolen in major hacks targeting Web3 protocols.
“Tornado Cash was seen as a tool used primarily to hide ill-gotten gains by the Lazarus Group, and the goal and objective of the Treasury Department was to deprive this enemy of the United States of a tool it used to money laundering,” said Jake Chervinsky, chief policy officer at the Blockchain Association, during a recent appearance on The Defiant Podcast. “While that is understandable to some extent…it makes no sense to sanction a neutral tool that can be used by anyone, just because a particular bad actor decides to use that tool.”
The Treasury Department is already reacting to the backlash against its sanctions against Tornado Cash. On September 13, the Treasury issued guidelines stating that US residents can apply for a specific license to withdraw funds from the platform.
The Treasury also clarified that while transactions with the Tornado Cash protocol are prohibited, U.S. persons can interact with its underlying code, including making the code available for viewing online or discussing the code in written publications.