A federal judge in Texas has in favor of the United States Department of the Treasury, delivering a blow to a group of crypto investors and developers who filed a lawsuit to revoke the sanctions placed on Tornado Cash, a cryptocurrency mixing service designed to enhance transaction anonymity.
The case, which was backed by cryptocurrency exchange giant Coinbase, revolved around the argument that the U.S. Treasury Department had exceeded its authority by imposing sanctions on Tornado Cash.
The service allows users to mix their cryptocurrency transactions, making them harder to trace.
Judge Robert Pitman of the U.S. District Court for the Western District of Texas, who presided over the case, granted a motion for summary judgment filed by the Treasury Department, thereby upholding the sanctions against Tornado Cash.
The plaintiffs, namely Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, had challenged the legitimacy of the sanctions.
Plaintiffs Argued Sanctions on Tornado Cash Violates Freedom of Speech
The plaintiffs contended that the Treasury Department’s designation of Tornado Cash exceeded its legal jurisdiction over foreign nationals’ property interests and also infringed upon the Free Speech Clause.
However, Judge Pitman dismissed this argument, saying that Tornado Cash indeed qualifies as an entity subject to designation.
He noted that the decentralized autonomous organization (DAO) governing the crypto mixing service demonstrated a coherent purpose through its voting members.
He likened this structure to that of a corporation where stockholders may choose not to participate in shareholder meetings without affecting the overall entity’s structure.
Treasury Department Imposed Sanctions on Tornado Cash
The legal dispute dates back to August 2022 when the Treasury Department’s Office of Foreign Assets Control (OFAC) Tornado Cash to its list of Specially Designated Nationals.
The Treasury Department on the mixing service Tornado Cash in November last year, citing North Korea’s Lazarus Group’s involvement.
This move was criticized by various crypto enthusiasts who saw it as an overreach of authority.
Subsequently, the plaintiffs, with the backing of Coinbase, filed a lawsuit in September 2022 to reverse the designation.
Judge Pitman’s ruling implies that Tornado Cash’s inclusion on the sanctioned entities list was within the Treasury Department’s regulatory scope and not inconsistent with its regulations.
Responding to the verdict, Coinbase’s Chief Legal Officer, Paul Grewal, the exchange’s intention to appeal the decision.
Grewal highlighted the importance of pursuing legal avenues to challenge the OFAC’s actions and expressed optimism about their position.
The ruling not only shapes the fate of Tornado Cash but also holds broader implications for the regulatory framework surrounding cryptocurrency services.
Tornado Cash has been successfully utilized by hundreds of scammers for money laundering, including the infamous North Korean hacker group Lazarus who has $455 million through the crypto mixer.