Publishing Tornado Cash code does not violate sanctions: US Treasury

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The digital currency industry was shaken to its core in August when the Office of Foreign Assets Control (OFAC) sanctioned the notorious Ethereum-based coin mixer Tornado Cash.

Now, the Department of the Treasury has clarified that visiting the Tornado Cash website, copying its open source code, or making said code available online or in print would not violate sanctions.

In an update to its website on September 13, the Treasury clarified some of the concerns voiced in the aftermath of the sanctions:

“U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.” 

Completing transactions and withdrawing funds 

The Treasury went further, clarifying that users could interact with the code in ways that did not involve making prohibited transactions. Those who initiated transactions before the sanctions action are eligible to apply for a license to complete them or make a withdrawal. 

“OFAC would have a favorable licensing policy towards such applications, provided that the transaction did not involve other sanctionable conduct,” the Treasury said. 

In other words, those genuinely using Tornado Cash for financial privacy can complete previously initiated transactions and withdraw funds after obtaining a license, while those using it for criminal purposes are locked out in the cold.

What does this mean for the Coinbase-backed legal action against the Treasury Department?

They done lost their damn mindshttps://t.co/uIsin93VOW

— shua (@cryptoAcorns) September 8, 2022

While it has been obvious to anyone paying attention that the clampdown on protocols like Tornado Cash is only going to step up a gear or two, Coinbase (NASDAQ: COIN) recently decided to side with some ‘crypto-anarchist’ types in their stand against the Treasury Department.

The digital currency exchange announced it would be backing a lawsuit brought by digital currency speculators, alleging that the Treasury had overstepped its authority in sanctioning Tornado Cash. Six Ethereum and Tornado Cash users alleged that OFAC’s actions were “not in accordance with the law.” This is despite the fact that OFAC is specifically tasked with implementing such sanctions in the interest of U.S. national security.

How does the Treasury’s most recent update impact this lawsuit? Let’s look at the arguments the plaintiffs are using to support it.

First, they argue that code is speech and is, therefore, protected by the first amendment of the U.S. constitution. This argument becomes much more difficult to make when the Treasury allows the code to remain online and users are free to copy and distribute it.

Second, they argue that Tornado Cash cannot be placed on the SDN list because it does not meet the definition of a property, foreign country, or national thereof. This argument is possibly the strongest of the three, and it’s not clear that the Treasury’s clarification impacts it in any significant way.

Lastly, the plaintiffs claimed that they could not access their ETH tokens stored in Tornado Cash pools because of the sanctions. This argument is now null and void as the Treasury has clarified that withdrawals can be made with a proper license. This puts criminals in a tough spot while allowing other users to get what’s rightfully theirs.

So, in a nutshell, the recent clarification has likely nullified two of the key arguments made in the Coinbase-backed lawsuit. Ultimately, we’ll see how this plays out, but the Treasury has just dealt a massive blow to the Coinbase-backed lawsuit, seemingly taking out two of the key arguments it rests on.

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