How the Tornado Cash Lawsuit Was Won and Why It Matters - Ep. 743
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This decision makes clear that there are limitations on the US sanctions power that OFAC can impose, and those are on open source immutable code. You can imagine code coming in the form of smart contracts like we saw with Tornado Cash, but there's lots of code outside of crypto that OFAC similarly does not have power to sanction just because amongst its many legitimate users are some bad actors.
Hi, everyone. Hi, everyone. Welcome to Unchained, your know hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto 9 years ago, and as a senior editor at Forbes, was the 1st Dmitri Meter Porter to cover cryptocurrency full time. This is the December 3, 2024 episode of Unchained. Robinhood Wallet, Robinhood's DeFi mobile app takes no fees on same chain and cross chain swaps. Use arbitrump's layer 2 to swap with low network fees in just a few taps. Other fees may apply. Download on iOS or Android today. Polkadot is the original and le
you, Laura. Thanks
for having us.
The crypto industry saw an important victory last week when a panel of 3 judges in federal appeals court struck down the Treasury Department's designation in August 2022 of the Tornado Cash smart contracts as sanctioned entities. Paul, can you explain what this means and why it matters?
What it means, Laura, is that for the very first time, a federal appellate court ruled that the Department of Treasury's OFAC or Office of Foreign Asset Controls violated the law when it designated the Tornado Cash Protocol as an SDN or specially designated national for purposes of international sanctions. It's a ruling that, really establishes for the first time that open source software like this is inappropriate for designation. But beyond that, it's a ruling that establishes that, once again, agencies are, required to operate within the constraints set by the congress in passing laws. And
Leah, as we mentioned, you managed this case for Coinbase, which was funding the lawsuit on behalf of 6 users of Tornado Cash, some of whom are also Coinbase employees. What was the judge's reasoning?
So agencies get their power from Congress, and they have to act within that power. So in this case, Congress authorized OFAC to impose sanctions against certain bad actors and the property in which those bad actors have an interest. What was novel about Tornado Cash is that for the first time, OFAC imposed sanctions on open source immutable code, claiming it was property or fell within the definition of property that was controlled by this Tornado Cash entity that OFAC broadly defined. We disagreed, and the 5th Circuit agreed with us last week. And the 5th Circuit made clear that property, as
So let's pick let's back up just to make sure that listeners have all the basic facts to kind of, like, understand this case. Can one of you briefly walk through how Tornado Cash works?
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