The digital currency industry was shaken to the core in August when the Office of Foreign Assets Control (OFAC) sanctioned notorious Ethereum-based coin mixer Tornado Cash.
Now, the Treasury Department has clarified that visiting Tornado Cash’s website, copying its open source code, or making said code available online or in print would not violate the sanctions.
In an update to its website on September 13, the Treasury clarified some of the concerns expressed in the aftermath of the sanctions:
“The United States would not be prohibited by United States sanctions regulations from visiting the Internet archive of the historic Tornado Cash website, or from visiting the Tornado Cash website if it becomes active again on the Internet.”
Perform transactions and withdraw funds
The Treasury went further by specifying that users could interact with the code in a way that did not involve performing prohibited transactions. Those who initiated transactions before the action of the sanctions can apply for a license to complete them or make a withdrawal.
“OFAC would have a favorable licensing policy for such applications, provided the transaction did not involve other sanctionable behavior,” the Treasury said.
In other words, those who genuinely use Tornado Cash for financial privacy can perform previously initiated transactions and withdraw funds after obtaining a license, while those who use it for criminal purposes are locked in the cold.
What does this mean for the Coinbase-backed lawsuit against the Treasury Department?
They’ve lost their mindshttps://t.co/uIsin93VOW
—Joshua Henslee (@cryptoAcorns) September 8, 2022
While it’s obvious to anyone paying attention that the crackdown on protocols like Tornado Cash will only go up a notch or two, Coinbase (NASDAQ: COIN) recently decided to side with certain types of “crypto -anarchists” in their position against the Direction du Trésor.
The digital currency exchange has announced that it will support a lawsuit brought by digital currency speculators, alleging that the Treasury exceeded its authority by 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 US national security.
What impact does the latest Treasury update have on this lawsuit? Let’s look at the arguments plaintiffs use to support it.
First, they argue that code is speech and is therefore protected by the First Amendment of the US Constitution. This argument becomes much harder 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 property, a foreign country, or a national thereof. This argument is perhaps the strongest of the three, and it is not clear that the Treasury clarification affects it in any significant way.
Finally, the plaintiffs claimed that they could not access their ETH tokens stored in Tornado Cash pools due to the sanctions. This argument is now null and void as the Treasury has clarified that withdrawals can be made with an appropriate license. This puts criminals in a difficult position while allowing other users to get what is rightfully theirs.
So, in a nutshell, the recent clarification likely negated two of the main arguments made in the Coinbase-backed lawsuit. Ultimately, we’ll see how it plays out, but Treasury has just dealt a heavy blow to the Coinbase-backed lawsuit, seemingly suppressing two of the main arguments on which it rests.
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