Sanctions lawyers say efforts to remove the Treasury from the list can be costly, time-consuming and often fail. While cryptocurrency proponents and the company argue that Tornado Cash sanctions violate privacy rights, a critical issue for an emerging industry, crypto experts say Tornado Cash may not be the best test of that argument.
Tornado Cash, a coin-mixing tool that allows users to mix their money to hide ownership, was approved in August by the US Treasury Department's Office of Foreign Assets Control, which sets US sanctions. OFAC accused Tornado Cash of allowing users to launder billions of dollars in virtual currency, including $455 million allegedly stolen by North Korean hackers. The sanctions froze US assets owned by Tornado Cash and barred US companies and individuals from doing business with them.
In September, the Treasury Department announced that the Tornado Cash website had been removed from the Internet, but was still available on some Internet Archives. Dutch authorities said in August that they arrested the alleged developer of Tornado Cash in Amsterdam, alleging that the 29-year-old was involved in hiding criminal transactions and facilitating money laundering through the platform.
Following the disclosure of the sanctions, Roman Semyonov, co-founder of Tornado, tweeted: "The Tornado Cash community is doing everything it can to be used by good players, for example by providing compliance tools."
The Coin Center, a Washington-based cryptocurrency research and advocacy group, and three individuals filed a lawsuit this month challenging the sanctions. The lawsuit alleges that OFAC does not have the legal authority to penalize the Tornado Cash platform, which uses independent open source software protocols, and that action against it violates the Privacy and Consumer Rights Amendments.
Coinbase, one of the most popular U.S. cryptocurrency exchanges, announced in September that it was funding a civil lawsuit asking a Texas judge to force the Treasury Department to lift sanctions against the Tornado Cash platform. The lawsuit contains arguments similar to those of Coin Center.
Jorge Pesoc, legal director of HBAR, a non-profit crypto organization that is not involved in the lawsuit, said he sees arguments for both sides of the lawsuit. While he believes the legal arguments in the case are valid, that Tornado Cash's punishment was an infringement on privacy rights and that the Treasury may have overstepped its bounds, the platform was being used for bad things, he said. “The courts are influenced by facts, here the facts are bad,” he said.
According to Kari Steinbauer, partner at Winston & Strawn LLP, a law firm that specializes in sanctions and anti-money laundering, an individual or entity can be removed from the sanctions list in two ways. First, to show that OFAC made a mistake. Another, more common way, he says, is to show that the reasons for the sanctions are no longer valid.
When people sue OFAC, Steinbauer said, they usually do so because they're frustrated and have tried other methods, like trying to get an OFAC license that would allow certain activities that were once banned. These grants usually fail, he said.
"Government actions are treated with great respect," he said. "They are supposed to behave correctly."
The Tornado Cash prosecution is unusual, and there are few precedents to suggest how long it could take, according to Jeffrey Alberts, a white-collar and fintech partner at Pryor law firm. Cashman LLP.
Alberts said the outcome of the lawsuits could clarify OFAC's legal authority and impact compliance practices. Other players in the decentralized finance industry have expressed similar concerns about OFAC's authority to sanction Tornado Cash.
Al-Sayed Alberts said one question is what would happen if the Office of Foreign Assets Control could control smart money — programs that automatically transfer currencies based on rules set in computer or blockchain code — as projects are used. . bad actors. national security.
"We hope that answers to these questions will be received in the near future," he said. “So far, the Treasury is bringing more uncertainty to the future of blockchain.”
Mengqi Sun's email at mengqi.sun@wsj.com
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