Should OFAC’s Blacklist be Respected or Ignored?

An interesting debate is developing between those in the crypto space who think Treasury’s Office of Foreign Assets Control – the agency that blacklisted Ethereum coin-mixer Tornado Cash in August – should be respected, and those who think it dramatically overstepped its authority.

There are several elements to unpack. For starters, sanctions are usually ineffective at best. Moreover, time and again we see that international government sanctions almost invariably hurt the people of the nation levying the sanctions more than the targeted nation.

Then there is the issue of subjective values. For instance, the United States’ sanctions make it illegal for an American citizen to transact with an Iranian because of America’s charge that Iran is a state sponsor of terrorism. Well and good. The problem, though, is that it also prevents Americans who want to donate to dissident groups inside Iran.

The use of anonymous, coin-mixed crypto could circumvent this challenge and help those who wish to fund the dissidents, but it still runs afoul of OFAC’s designated list of prohibited organizations, nations, individuals and now open-source code.

This latest debate came between FTX head Sam Bankman-Fried and ShapeShift co-founder Erik Voorhees.

Bankman-Fried: “Everyone should respect OFAC’s sanctions lists (which, by the way, is already the law).”

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On the face, Bankman-Fried appears to be suggesting mostly logical rules that would safeguard consumers, especially vulnerable retail investors. 

But Erik Voorhees, ShapeShift co-founder, took up a number of concerns with the crypto billionaire. Voorhees, an early Bitcoin adopter, is one of several high-profile industry participants to speak out against some of Bankman-Fried’s proposals. 

Although Voorhees agreed on the need for transparency and scam prevention, he did have opposing views on two key proposals: respecting OFAC and licensure for DeFi-related activities.

He said OFAC’s list includes entire countries and took the example of sanctioned Iran, pointing out that it’s illegal for an American to do business with an Iranian.

“You know those insanely brave Iranian women standing up against oppression in Iran right now? Those women espousing the greatest American virtue of individual liberty and doing so while literally facing torture and death?” he said, referring to the women protesting against the “morality police” in Iran over the death of 22-year-old Mahsa Amini. 

“If you’re an American, it is illegal for you to interact economically with those women, because of OFAC.”

Bankman-Fried suggesting that the crypto industry should respect OFAC is “unbecoming,” he added.

As a supplement to this discussion, Twitter BowTiedIguana raised other issues with Bankman-Fried’s position in a lengthy thread that’s worth the read.