U.S. District Court Upholds Sanctions on Crypto Platform Tornado Cash

News | August 22, 2023 By:

On August 17, 2023, U.S. District Judge Robert Pitman issued an order granting summary judgment in favor of the U.S. government in a lawsuit challenging the Treasury Department’s designation of Tornado Cash. The plaintiffs, a group of Tornado Cash users, had argued that the designation exceeded the government’s legal authority and violated their First Amendment rights.

Background on Tornado Cash Designation

In August 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated Tornado Cash as a Specially Designated National. OFAC asserted that Tornado Cash, a cryptocurrency mixing service operating on the Ethereum blockchain, had laundered hundreds of millions of dollars worth of virtual currency since its creation in 2019, including cryptocurrency stolen by North Korean state-sponsored hacking groups.

The designation prohibited U.S. persons from engaging in transactions with Tornado Cash and blocked all property and interests in property that Tornado Cash had within U.S. jurisdiction. A group of Tornado Cash users then filed a lawsuit challenging the designation.

Court Rules Tornado Cash Was Properly Designated as an Entity

In the order, Judge Pitman ruled that OFAC was within its authority to designate Tornado Cash as an entity under the International Emergency Economic Powers Act (IEEPA).

“The Court finds that Tornado Cash is an association within the ordinary meaning of the term and is therefore an entity that may be designated per OFAC regulations,” Judge Pitman wrote.

The plaintiffs had argued that Tornado Cash was merely a decentralized software code rather than an organized entity. But Judge Pitman found that Tornado Cash consists of founders, developers, and a DAO that together act as an association promoting and governing Tornado Cash.

Tornado Cash Ruled to Have Property Interest in Smart Contracts

Judge Pitman also rejected the plaintiffs’ claims that the Tornado Cash smart contracts targeted by the designation were not “property” subject to blocking under IEEPA.

“The Court finds that OFAC’s designation of Tornado Cash does not exceed its statutory powers and is not plainly inconsistent with its regulations,” the judge stated. “Tornado Cash is an entity that may be designated by OFAC and it has a property interest in the smart contracts it has deployed.”

First Amendment Claims Dismissed

In addition, Judge Pitman dismissed the plaintiffs’ arguments that the Tornado Cash designation violated their First Amendment rights.

“Plaintiffs have not shown that the government’s action in any way implicates the First Amendment,” the judge wrote. “Tornado Cash, however, is not a public place or public forum; the cases Plaintiffs cite are inapposite.”

With the court siding entirely with the government’s position, the path now appears clear for OFAC to continue enforcing its sanctions against Tornado Cash. The ruling represents a major victory for the Treasury Department as it seeks to crack down on the use of cryptocurrency to facilitate crime and evade sanctions.

A copy of the original filing can be found here.