Tornado Cash Loses Lawsuit Against US Government: Report

Tornado Cash, the most well-known crypto mixing service, was sanctioned by the U.S. Office of Foreign Assets Control (OFAC) last August.

The decision was the result of a long-lasting spat between the regulator and the crypto mixer dating back to at least 2018 when two persons of special interest to the U.S. government were found to be using its services.

Support From Coinbase

Although crypto mixers do, indeed, appeal to cybercriminals, their main purpose is to grant extra privacy to those who want it. In order for a crypto mixer to work as intended, the number of benign users must be much higher than the amount of bad actors using it. With no sizable amounts of assets to mix, the operation falls flat.

It is with this distinction in mind that Coinbase supported Tornado Cash’s appeal against the sanctions.

Rights are rarely secured on a path that is always ⬆️ and ➡️. We continue to believe Plaintiffs’ challenge to OFAC’s Tornado Cash action is right. We’ve always known that Fifth Circuit review is required to resolve these issues, and we continue to support them on appeal. 1/4 pic.twitter.com/Tz8FkFCSf2

— paulgrewal.eth (@iampaulgrewal) August 17, 2023

However, the appeal has since fallen flat on its face, according to Bloomberg.

Vested Interest

According to court documents, Tornado Cash’s argument focused on its definition as a “decentralized, open-source software project made of the smart contracts on the Ethereum blockchain.”

However, the minting of TORN tokens, administered by the Tornado Cash DAO, led the government to believe otherwise. Although a DAO is technically autonomous, the court argued that whoever holds the most funds has the most voting power, therefore re-centralizing decisions in a roundabout way.

The case was presided over by Judge Robert Pitman of the U.S. District Court for the Western District of Texas.

Motivating his decision to turn down the lawsuit, Judge Pitman stated that, in the eyes of the U.S. government, Tornado Cash is indeed an entity with a property interest, and therefore OFAC’s sanctions of the crypto mixer do not qualify as 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, argues that Tornado Cash is an entity that may be designated and that it has a property interest in the smart contracts.”

Unless further arguments are brought forth, Tornado Cash will remain on OFAC’s Specially Designated National list, which prevents the entity from doing business with the banking sector and a wide range of businesses.