Tornado Cash Appeal Rejected

Reading Time: 2 minutes
  • A federal court has affirmed the Treasury Department’s power to impose sanctions on Tornado Cash, rejecting users’ challenge over First Amendment rights
  • The court ruled in favor of the government following a legal challenge over last year’s sanction
  • Users had claimed the sanctions infringed on their right to meaningful speech

A federal court has upheld the Treasury Department’s authority to impose sanctions on cryptocurrency mixer Tornado Cash, rejecting a legal challenge by users who argued the sanctions violated their First Amendment rights. U.S. District Judge Robert Pitman granted summary judgment in favor of the government, stating that the Treasury’s Office of Foreign Assets Control (OFAC) had the right to impose sanctions on Tornado Cash. The court denied the plaintiffs’ request for summary judgment, who had claimed that the government’s action curtailed their ability to engage in meaningful speech and contribute to important causes.

OFAC Banned Tornado Cash Last August

Tornado Cash’s website and Github codebase were banned by the Office of Foreign Assets Control (OFAC) in August last year, prohibiting any U.S. persons or entities from interacting with it. It noted in its filing on the matter that Tornado Cash had helped North Korea launder hundreds of millions of dollars in cryptocurrencies, which was a primary motivator behind its decision:

OFAC’s assessment is that the DPRK’s malevolent cyber activities pose a substantial menace to both the U.S. and the global community, posing a notable risk to the worldwide financial structure.

Hackers were still able to call the smart contract behind the mixer and carry on their nefarious deeds, although activity on the mixer has dropped significantly thanks to the lack of an interface.

Privacy Arguments Sprang Up

Plenty of arguments have arisen against the decision in the months since, most centering around the right to privacy, resulting in a lawsuit being filed by six Tornado Cash users in September last year.

Claiming a violation of the First Amendment, the Tornado Cash users asserted that the government’s action was illegal, contending that their capacity for “socially valuable speech” was hindered due to their intention to contribute to significant political and social matters through Tornado Cash donations.

Judge Pitman disagreed, writing that the plaintiffs “have not shown that the government’s action in any way implicates the First Amendment,” adding that Tornado Cash qualifies as an “association” subject to sanctions and that its smart contracts are considered “property” under OFAC’s regulations.

Interestingly, the judge also noted that the plaintiffs could have pursued a Fifth Amendment claim regarding their inability to access Ethereum in a Tornado Cash smart contract, but they waived this claim by not pursuing it in the case.