Sanctions Should Target Bad Actors. Not Technology.
Sanctions Should Target Bad Actors. Not Technology/Six individuals filed a case, which Coinbase is sponsoring, requesting the court to overturn the US Treasury Department’s penalties against the Tornado Cash smart contracts. According to the lawsuit, OFAC went beyond the scope of its powers granted by Congress and the President by penalising open source software rather than the criminal actors who utilised it or their assets.
Brian Armstrong explained today the rationale for Coinbase’s sponsorship and support of a six-person lawsuit (including two Coinbase employees) challenging the Treasury Department’s unique restrictions on open source software used in Tornado Cash. I wanted to take a moment to provide some additional information on this legal action. This legal challenge primarily focuses on how the Treasury Department went beyond the powers Congress and the President allowed it by punishing open source technology rather than sanctioning theeither the property of the criminal guys who utilised it.
Nobody wants criminals to utilise crypto protocols, but completely shutting down the technology (which is what this punishment effectively accomplishes) is not what the people’s elected representatives intended, especially because there are efficient ways to more precisely target bad actors. The tales of these six persons demonstrate how these sanctions reflect a huge unlawful expansion of OFAC’s jurisdiction and how they have damaged innocent people who were utilising this technology to lawfully defend their privacy and security.
Sanctions for tornado cash
Tornado Cash is an open source software project that uses smart contracts to enable users to send assets privately over the Ethereum network. On August 8, 2022, Treasury’s Office of Foreign Assets Control (“OFAC”) sanctioned Tornado Cash. Tornado Cash’s smart contracts, which are open source, freely accessible tools that anyone can access to send assets from their private accounts and withdraw them to different crypto addresses, were added to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”) as part of this action. The Ethereum network executes smart contracts, which are basically pieces of code, in accordance with rigid, unchangeable rules. Smart contracts are not controlled by any one person or organisation.
While past OFAC penalties against people or organisations occasionally revealed the cryptocurrency addresses that these illicit actors owned or controlled, the Tornado Cash smart contracts were the first open source technology that OFAC had ever sanctioned. For instance, when OFAC imposed sanctions on the North Korean Lazarus Group, it added eight Ethereum addresses to the list of targets; each of these addresses was a group account where the group kept its assets.
In this case, OFAC rendered it illegal for any U.S. individual to utilise this privacy protocol by placing the Tornado Cash smart contracts on its SDN List, thereby outlawing this technology.
In sanctioning open source technology, OFAC went beyond what Congress and the President had given it permission to do.
The representatives of the people in Congress pass laws outlining the authority of federal agencies, such as the Treasury Department, to carry out their duties. Federal agencies are required to operate within the confines of their Congressionally established power. Congress has also given courts the authority to examine agency actions if they go above those authority levels.
When an action goes beyond those bounds, Congress has also given the courts the right to evaluate it, with the goal of setting the unconstitutional action aside as the remedy. These obstacles must be overcome in order to prevent presidential overreach and guarantee that agency action stays within the parameters set by the people’s representatives in Congress.