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Tornado Cash, the most prominent cryptocurrency mixing service, faced sanctions from the U.S. Office of Foreign Assets Control (OFAC) last August.
This action stemmed from a prolonged conflict between the regulator and the crypto mixer that dates back to at least 2018, when two individuals of particular interest to the U.S. government were discovered utilizing its services.
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While crypto mixers do attract cybercriminals, their primary function is to provide additional privacy for those seeking it. For a crypto mixer to operate effectively, the number of legitimate users must significantly exceed that of malicious actors. Without substantial assets to mix, the operation becomes ineffective.
With this distinction in mind, Coinbase backed Tornado Cash’s appeal against the sanctions.
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However, according to Bloomberg, the appeal has ultimately been unsuccessful.
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Vested Interest
Court documents reveal that Tornado Cash’s defense centered on its classification as a “decentralized, open-source software project composed of smart contracts on the Ethereum blockchain.”
Nevertheless, the issuance of TORN tokens, managed by the Tornado Cash DAO, led the government to reach a different conclusion. Although a DAO is inherently autonomous, the court contended that those with the largest financial stakes possess the most voting influence, thereby re-centralizing decision-making indirectly.
The case was overseen by Judge Robert Pitman of the U.S. District Court for the Western District of Texas.
In explaining his decision to dismiss the lawsuit, Judge Pitman indicated that, from the perspective of the U.S. government, Tornado Cash is indeed an entity with a property interest, and thus OFAC’s sanctions against the crypto mixer do not constitute governmental overreach.
“This case is about Tornado Cash — but the parties disagree on how to characterize Tornado Cash. Plaintiffs argue that [Treasury’s Office of Foreign Assets Control’s] designation of Tornado Cash exceeds the Department’s statutory authority over foreign nationals’ interests in property and violates the Free Speech Clause. […]
The government, on the other hand, contends that Tornado Cash is an entity that may be designated and that it has a property interest in the smart contracts.”
Unless additional arguments are presented, Tornado Cash will continue to be listed on OFAC’s Specially Designated Nationals list, which restricts the entity from engaging in business with the banking sector and a broad array of companies.
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