A non-profit think tank defends crypto privacy over Tornado Cash sanctions

Samuel Walker  - Technology Policy Researcher
Last updated: November 6, 2023
Crypto privacy Tornado Cash
  • Coin Center, a crypto think tank, sues OFAC over sanctions against Tornado Cash, a privacy mixer.
  • In their view, Americans are free to use privacy mechanisms, and OFAC does not have the authority to censor smart contracts.
  • Coinbase, a publicly traded American firm that operates crypto exchange, is also supporting this case with Coin Center.

Earlier this month, the Coin Center, a non-profit organization focusing on cryptocurrency policies, announced that it is filing a lawsuit against OFAC for its sanctions on Tornado Cash, a non-custodial, open-source, fully decentralized cryptocurrency tumbler.

Coin Center reiterated its cryptocurrency-forward mission on October 12, stating that Americans can use privacy mechanisms and OFAC has no jurisdiction over smart contracts.

The second lawsuit from Coin Center in 2022

Earlier this June, the advocacy group sued the Treasury Department for allegedly violating the Constitution by implementing unconstitutional surveillance measures.

The suit asserted that there were legitimate uses for privacy-enhancing tools like Tornado Cash, and OFAC’s sanctions against the privacy mixer – a tool that pools funds to obscure the sender of a transaction – now expose these individuals’ entire transaction history to anyone who looks at the network data.

Four major claims in this lawsuit

  1. Treasury’s sanctions rules are based on an International Emergency Economic Powers Act passed by Congress that gave the president very specific powers: sanctions can prevent U.S. citizens from transacting with foreign individuals or the majority of foreign entities or their property.
  2. Sanction controls restrict the scope of sanctions to transactions involving individuals, entities, or their property by the Treasury’s created rules and earlier presidential orders (Old ones), making the Tornado sanction “contrary to law.”
  3. Coin Center characterized Treasury’s actions as “arbitrary and capricious,” noting that the Treasury ignored the collateral effects of penalizing Tornado Cash instruments and failed to explain why its actions departed significantly from previous sanctions guidelines.
  4. Private donations are among the rights that are essential and self-evident in the “American system.”

More opposition against crypto mixer sanction

Earlier this year, Coin Center sued Treasury, claiming a tax reporting rule enacted as part of last year’s infrastructure bill violates the Constitution. Upon receiving more than $10,000 in cryptocurrency, taxpayers must collect and report personally identifiable information, including Social Security numbers. (responses from the federal government are due Nov. 7, 2022.)

Tornado Cash is the subject of another lawsuit, funded by cryptocurrency exchange Coinbase.

Coinbase filed a lawsuit last month alleging that OFAC exceeded its legal authority when it designated an open-source project as a sanction.

The defendants also include Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki. Three other plaintiffs are tied to the suit: Florida-based software developer Patrick O’Sullivan, New York-based investor David Hoffman, and an unnamed Ukraine supporter.

Hoffman was dusted with a small amount of Ethereum, and OFAC stated some lines in that regard.

“Ethereum users like Mr. Hoffman have no ability to reject incoming transfers. So the criminalization of Tornado Cash empowered someone else to implicate Mr. Hoffman and force reporting obligations on him by causing him to receive an asset from a sanctioned entity, and it has licensed anyone else who wishes to harass or inconvenience Mr. Hoffman to continue to send crypto assets through Tornado Cash to Mr. Hoffman’s publicly known addresses, each time triggering potential liability and reporting obligations.”

After all of this, Treasury has seemingly decided not to comment on this situation, as they understand anything from them can be used against them in court.

Editor note: Story updated on May 29, 2023, to replace outlookindia.com link with investing.com on ‘earlier this year’ text as we found the later one to be a better resource to link in this case.

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About the Author

Samuel Walker

Samuel Walker

Technology Policy Researcher

Sam Walker is a tech-focused writer who has traveled the world but currently lives in Australia. He has a keen interest in digital privacy and security. Sam loves testing new technology and researching the latest security trends to keep others informed (and ultimately safe) online.

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