Tornado Cash Sanctions Affirmed by Federal Court

A federal court has upheld the Treasury Department's authority to impose sanctions on the cryptocurrency mixer Tornado Cash, rejecting a legal challenge brought by Tornado Cash users.

U.S. District Judge Robert Pitman sided with the government on all of its claims and granted summary judgment in the case, affirming that the Treasury's Office of Foreign Assets Control's (OFAC) is entitled to cite Tornado Cash under sanctions statutes.

The summary judgment requested by the plaintiffs—six Tornado Cash users—was simultaneously denied.

The Tornado Cash users had said the government's action was unlawful as it violated the First Amendment, arguing that they were denied the ability to engage in "socially valuable speech" because they would have used Tornado Cash "to make donations to important political and social causes." Pitman disagreed, writing that the plaintiffs "have not shown that the government’s action in any way implicates the First Amendment."

The six users are identified in the ruling as Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch.

The ruling stems from a lawsuit filed by the six users after the Treasury Department added the cryptocurrency mixing service to its Specially Designated Nationals and Blocked Persons List in August of last year. Tornado Cash is accused of laundering more than $7 billion worth of virtual currency, including allegedly facilitating transactions for North Korean hackers.

Judge Pitman found Tornado Cash operates as an “association” that can be properly sanctioned as an entity under the International Emergency Economic Powers Act.

The court also determined smart contracts deployed by Tornado Cash constitute “property” subject to sanctions under OFAC's broad regulatory definitions.

Intriguingly, the judge noted that the plaintiffs could have made a case that their inability to access Ethereum trapped in a Tornado Cash smart contract pool violated the Fifth Amendment, which guarantees protection against the taking of property by the government without compensation.

"However, Plaintiffs did not pursue their Fifth Amendment claim, even after the government raised the issue of waiver in its cross-motion," the judge wrote. "Because Plaintiffs failed to pursue their Fifth Amendment claim, they have waived it."

Paul Grewal, chief legal officer at cryptocurrency exchange Coinbase, which is backing the lawsuit, said in a statement they “continue to believe Plaintiffs' challenge to OFAC's Tornado Cash action is right” and that the issues require Fifth Circuit appellate review.

The Treasury Department has said Tornado Cash was being used to launder virtual currency for cybercriminals, including to support North Korea's regime.

"OFAC determined that the DPRK’s malicious cyber-enabled activities threaten the United States and the broader international community and pose a significant threat to the international financial system," the ruling noted. "OFAC also observed that the DPRK has increasingly relied on cybercrime to generate revenue for its weapons of mass destruction and ballistic missile programs."

Editor's note: This story was drafted with Decrypt AI from sources referenced in the text, and fact-checked by Ozawa.