Treasury, OFAC Double Down on Tornado Cash

Despite political fallout and strong crypto industry pushback, Treasury is doubling down on its sanction of Ethereum mixer Tornado Cash, going DefCon 1 by invoking the threat of the North Koreans and their nuclear program.

The U.S. Treasury Department’s Office of Foreign Assets Control "redesignated" Tornado Cash as a “sanctioned entity,” claiming that North Korea employed the software in funding its nuclear weapons program. This comes after OFAC added Tornado Cash and associated addresses to its universal sanctions list, the List of Specially Designated Nationals and Blocked Persons (SDN), which is normally reserved for rogue nations, terrorist masterminds, “enemy” oligarchs and drug kingpins.

"This action is part of the United States’ ongoing efforts to limit the DPRK’s ability to advance its unlawful weapons of mass destruction (WMD) and ballistic missile programs that threaten regional stability and follows numerous recent DPRK ballistic missile launches, which are in clear violation of multiple United Nations (UN) Security Council resolutions," a press release from the Treasury Department stated.

According to The Block:

The announcement effectively entrenches OFAC's treatment of Tornado Cash as a threat to national security. 

The double designation also flies in the face of multiple lawsuits from the crypto industry and advocates aiming to roll back the original sanctions. Those suits argue that Tornado Cash, as a decentralized smart contract, cannot be an "entity" as the terms of OFAC's sanctioning authority lay out. OFAC "exceeded their statutory authority because Tornado Cash is used to complete functions that do not include 'any property in which any foreign country or a national thereof has any interest,'" the nonprofit Coin Center argued in their case. 

A new FAQ from OFAC addresses this argument quite directly. "OFAC designated the entity known as Tornado Cash, which is a 'partnership, association, joint venture, corporation, group, subgroup, or other organization' that may be designated pursuant to IEEPA," the office wrote in its latest guidance. 

No matter what rationale the government invokes to rationalize its actions, the crypto community has to push back or else authorities will use these rogue actions as precedent for even more overreach. It is morally indefensible for governments to outlaw most any “thing” – much less 1st Amendment protected open source code – on the basis the thing could be used for criminal purposes. We believe government should go after criminals, not ordinary, everyday tools that everyone uses.