Court Upholds OFAC's Designation of Tornado Cash Under IEEPA
The US District Court upheld the OFAC's designation of Tornado Cash under the IEEPA, rejecting plaintiffs' claims of overreach and First Amendment violations, highlighting legal challenges for privacy-oriented blockchain entities.
The United States District Court for the Northern District of Florida issued a decision concerning the designation of Tornado Cash by the Office of Foreign Assets Control (OFAC). The case, identified as Case 3:22-cv-20375-TKW-ZCB, revolved around the designation of Tornado Cash under the International Emergency Economic Powers Act (IEEPA). The IEEPA authorizes the president to declare national emergencies to handle unusual foreign threats to the United States' national security, foreign policy, or economy. Utilizing this authority, the president had declared national emergencies concerning malicious foreign cyber-enabled activities and North Korea's nuclear missile program.
Tornado Cash, a service utilizing smart contracts on the Ethereum blockchain to provide a degree of anonymity to transactions, was designated by OFAC on August 8, 2022, and later re-designated on November 8, 2022. This designation was challenged by the plaintiffs, who are users and a non-profit cryptocurrency advocacy organization. They argued that the designation of Tornado Cash's core software tool exceeded OFAC's statutory authority since it is mere computer code and no foreign entity has a legally recognized "property interest." The designation listed 91 internet addresses affiliated with Tornado Cash, aiming to block and prohibit transactions through these addresses.
The Court's decision upheld OFAC's designation. It rejected the plaintiffs' argument, stating that the operative language in the IEEPA is "any interest," not "property interest" or "ownership interest." According to the Court, Tornado Cash's founders, developers, and Decentralized Autonomous Organization (DAO) have an indirect beneficial "interest" through the service's usage, which increases the value of Tornado Cash's governance token, TORN. The Court explained that an increased usage of Tornado Cash enhances the value of TORN, held by these entities, and thus establishes a financial "interest" for the purposes of the IEEPA.
Furthermore, the Court found that OFAC's decision was not arbitrary or capricious and was adequately justified based on the foreign-affairs rationale, particularly given Tornado Cash's involvement in laundering cryptocurrency for the benefit of the North Korean government. The Court also dismissed the plaintiffs' First Amendment claims, stating the designation didn’t implicate Plaintiffs' First Amendment rights as there are other privacy tools available for them.
In conclusion, the Court denied the plaintiffs' motion for summary judgment and granted the defendants' cross-motion for summary judgment, thereby upholding OFAC's designation of Tornado Cash under the IEEPA. This judgment underscores the legal challenges faced by privacy-centric blockchain services in light of national security and foreign policy concerns.
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