Efforts to remove Treasury from sanctions list can be costly and time-consuming, and they often fail, lawyers say
Tornado Cash, a currency mixer that lets users mix their funds to obscure ownership, was approved in August by the Treasury’s Office of Foreign Asset Control, which enforces US sanctions. OFAC accused Tornado Cash of allowing users to launder billions of dollars in virtual currency, including $455 million allegedly stolen by North Korean hackers. The sanctions sealed American assets near the Tornado Cache and barred American companies and individuals from doing business with it.
In September, the Treasury said that Tornado Cash’s website had been taken down from the Internet, but it remained available through some Internet archives. In August Dutch authorities said they had arrested a suspected developer of Tornado Cash in Amsterdam, alleging that the 29-year-old was involved in concealing criminal transactions and facilitating money laundering through the platform.
After the sanctions were unveiled, Tornado co-founder Roman Semenov said on Twitter: “The Tornado Cash community does its best to ensure that it can be used by good actors, for example by providing compliance tools.”
Coin Center, a Washington, DC-based crypto research and advocacy group, filed a lawsuit this month with three individuals challenging the sanctions. The suit argues that OFAC does not have the statutory authority to ban Tornado Cache, a platform based on the open-source, self-running software protocol, and that actions against it violate Americans’ privacy and First Amendment rights. .
Publicly-traded Coinbase, one of the most popular US crypto exchanges, said in September that it was funding a civil lawsuit that asked a Texas judge to ask the Treasury Department to reverse sanctions against the Tornado Cash platform. tells to force. The suit includes the same logic as the coin center.
George Pesok, chief legal officer of the HBAR Foundation, a crypto-focused nonprofit that is not involved in the lawsuits, said he saw the reasoning behind both sides of the suit. While he believes the legal arguments brought in the case are valid – that clearing Tornado Cash was an attack on privacy rights and that the Treasury may have been overrun – the platform was used for bad things. Yes, he said. “Courts are influenced by facts; The facts here are bad,” he said.
Typically, there are two ways for an individual or entity to come off a sanctions list, according to Carrie Steinbower, a partner at the law firm Winston & Strone LLP, which specializes in sanctions and anti-money-laundering compliance. One is to show that OFAC made a mistake. The second approach, which is more common, is to show that the reasons for the restrictions no longer apply, she said.
When individuals sue OFAC, they usually do so because they are frustrated and have tried other methods, such as trying to obtain a license from OFAC, which allows certain activities that would otherwise be will be banned, according to Ms Steinbower. But these suits usually fail, she said.
“There’s a lot of respect for government work,” she said. “The presumption is that they are acting appropriately.”
Trials in the Tornado Cash case are unusual and there is little precedent to indicate how long they may take, according to Jeffrey Alberts, a partner in law firm Prior Cashman LLP specializing in white-collar crime and fintech.
The outcome of the lawsuits could potentially clarify OFAC’s legal authority and affect compliance practices, Mr Alberts said. Other participants in the decentralized-finance industry have expressed similar concerns about OFAC’s power to approve Tornado Cash.
One question, Mr Alberts said, is whether OFAC can approve smart contracts – programs that automatically transfer crypto based on rules contained in computer code – or a blockchain token by arguing that projects use poorly. actors who threaten national security.
He said, ‘Hopefully these questions will be answered soon. “For now, the Treasury Department introduces more unpredictability into the future of blockchain.”
write to Mengqi Sun at [email protected]
Credit: www.wsj.com /