Tornado Cash Sanctions “Unprecedented and Unlawful” Says Blockchain Association

News | June 5, 2023 By:

The Blockchain Association, a trade group that advocates for the crypto industry, has filed an amicus brief in support of Coin Center, a non-profit research and advocacy organization, in its lawsuit against the U.S. Treasury Department over its sanctions on Tornado Cash, a decentralized privacy tool.

The lawsuit, filed in May 2023, challenges the Treasury’s decision to designate Tornado Cash as a “primary money laundering concern” under Section 311 of the USA PATRIOT Act, which effectively bans U.S. financial institutions from transacting with the protocol or its users.

Coin Center argues that the Treasury’s action violates the First Amendment rights of Tornado Cash users, who use the protocol to protect their privacy and anonymity on the Ethereum blockchain. Coin Center also claims that the Treasury failed to provide adequate notice and opportunity for public comment before issuing the sanctions.

The Blockchain Association’s amicus brief, filed on June 2, 2023, supports Coin Center’s arguments and adds that the Treasury’s action also harms the broader crypto industry by creating legal uncertainty and chilling innovation.

The brief states that Tornado Cash is not a money transmitter or a financial institution, but rather a software protocol that enables peer-to-peer transactions without intermediaries. The brief also asserts that Tornado Cash does not facilitate money laundering, but rather enhances financial inclusion and human rights by allowing users to exercise their right to privacy.

“OFAC’s sanctions are unlawful,” the brief said. “OFAC lacks statutory authority to sanction software like Tornado Cash, and regardless, its decision lacks any factual predicate that could render the sanctions lawful.”

The brief concludes that the Treasury’s action is “arbitrary and capricious” and should be set aside by the court.

The case is pending before the U.S. District Court for the District of Columbia. The Treasury has not yet filed a response to Coin Center’s complaint.