A federal judge in Texas has sided with the United States Department of the Treasury, marking a significant turn in a lawsuit filed against the government’s decision to sanction cryptocurrency mixer Tornado Cash.
The Lawsuit and the Backing
In September 2022, six plaintiffs—Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch—filed a lawsuit against the Treasury Department’s Office of Foreign Assets Control (OFAC). They were financially supported by major crypto exchange Coinbase. This lawsuit aimed to reverse the government’s designation of Tornado Cash as a sanctioned entity, a decision that ignited controversy and drew criticism from numerous cryptocurrency advocates, including the nonprofit Coin Center and the Blockchain Association.
Tornado Cash: More Than Just Code
Tornado Cash is open-source software that allows for the anonymization of transactions on the Ethereum blockchain. The plaintiffs argued that the OFAC’s designation was an overreach, asserting that Tornado Cash, being software, is not a “person” and hence should not fall under OFAC regulations. Judge Robert Pitman of the U.S. District Court for the Western District of Texas disagreed. In his ruling, Pitman highlighted that Tornado Cash has founders, developers, and a decentralized autonomous organization that governs it, thereby constituting an “association” within the scope of OFAC’s regulations.
The Ruling
In his decision, Judge Pitman firmly dismissed the plaintiffs’ arguments, stating that Tornado Cash is an entity that may be designated under OFAC regulations. He upheld that the U.S. Treasury acted within its statutory authority when it added Tornado Cash to its Specially Designated Nationals list.
Judge Pitman’s ruling further elaborated that while developers could analyze and teach the code behind the mixer, they are restricted from executing it to conduct cryptocurrency transactions.
The Aftermath and Possible Appeal
Following the ruling, Paul Grewal, Coinbase’s Chief Legal Officer, insinuated that an appeal might be forthcoming, highlighting the ongoing commitment to challenge OFAC’s designation of Tornado Cash.
As this landmark case progresses, it sets a precedent for how cryptocurrency software, particularly those aiming to provide privacy features, may be treated under U.S. law.
