Crypto policy non-profit Coin Center filed a federal lawsuit against the US Treasury Department’s Office of Foreign Asset Control (OFAC) on Wednesday, claiming the government agency unlawfully overreached its authority when it criminalized interaction with Ethereum coin-mixing tool Tornado Cash in August.
With Wednesday’s lawsuit, Coin Center made good on a promise made in the days following the unilateral ban of the crypto privacy tool and numerous wallet addresses associated with it—that the organization would likely challenge the Tornado Cash ban in court.
1/ Today Coin Center filed suit in federal district court against OFAC challenging its authority to sanction Tornado Cash immutable smart contracts.
OFAC justified the ban at the time by arguing that Tornado Cash—which obfuscates the trails of typically-public Ethereum transactions by mixing many transactions together and thus rendering them untraceable—had been used to launder money by bad actors, including North Korean state-sponsored hacking organization the Lazarus Group.
Many in crypto immediately fired back, saying that adding the tool to a list typically reserved for terrorist organizations and enemy nations, the US government had declared war against crypto’s oldest, holiest tenet: user privacy.
Coin Center’s leadership views today’s lawsuit as critical to crypto users’ rights to privacy, as well as to crypto’s very survival.
“Not only are we fighting for privacy rights, but if this precedent is allowed to stand, OFAC could add entire protocols like Bitcoin or Ethereum to the sanctions list in [the] future, thus immediately banning them without any public process whatsoever,” Coin Center executive director Jerry Brito tweeted this morning. “This can’t go unchallenged.”
2/ Not only are we fighting for privacy rights, but if this precedent is allowed to stand, OFAC could add entire protocols like Bitcoin or Ethereum to the sanctions list in future, thus immediately banning them without any public process whatsoever. This can’t go unchallenged.
The lawsuit, filed today in the United States District Court Northern District of Florida, joins another similar federal suit filed last month against the US Treasury by crypto exchange Coinbase. That suit argued predominantly that OFAC overstepped the law by banning a piece of open source software unaffiliated with any company (Tornado Cash is a permissionless, decentralized tool that operates without the oversight of a parent organization).
While Coin Center’s lawsuit touches on that argument, it also advances the specific claim that OFAC’s regulatory mandate, granted by the International Emergency Economic Powers Act, only permits the agency the power to block Americans from “transacting with a foreign person or major foreign entity.”
“When we or our co-plaintiffs use the Tornado Cash tools, we do so as normal, privacy seeking Americans,” Brito and Coin Center research director Peter Van Valkenburgh said in a statement today. “We do not engage in any transactions with any foreign person or entity or their property.
“Instead, we are using immutable and widely available software on the Ethereum blockchain to move our own valuables from one place in cyberspace that is fully under our control to another place that we also control,” he said.
The fact that OFAC designated Ethereum transactions running through Tornado Cash as foreign clashes with the perspective recently put forward by another executive branch agency, the Securities and Exchange Commission (SEC).
Last month, the SEC claimed in a federal lawsuit that all Ethereum transactions globally should be considered under American jurisdiction because the plurality of Ethereum’s decentralized node validators are based in the United States.
While OFAC and the SEC are not bound to holding the same views on all matters, the contrast between their views on Ethereum’s status as a foreign or domestic entity could become a key flashpoint in the US government’s escalating mission to bring crypto under its purview.
Coin Center’s suit seeks to fully overturn the Tornado Cash ban, and restore Americans’ right to use the tool.
“Privacy is normal,” Brito and Van Valkenburgh said today, “and when we win our lawsuit, using Tornado Cash will be normal again.”
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