Last month, the Treasury decided to lift its sanctions on Tornado Cash, stirring renewed calls from many quarters for the Trump administration to dismiss charges against Keonne Rodriguez and William Lonergan Hill. These two, the brains behind Samourai Wallet, are currently facing prosecution in New York’s Southern District.
Interestingly, the Treasury’s move with Tornado Cash sheds light on its broader perspective on privacy services, and it’s far from optimistic.
The saga began with Tornado Cash being removed from the OFAC’s SDN list. This action followed a significant lawsuit in a Texas District Court, known as Van Loon v. US Department of the Treasury. Users argued that sanctioning the software infringed on free speech rights and was unlawful.
The case reached the Fifth Circuit Court of Appeals, where a panel of judges agreed that placing software like Tornado Cash on the SDN list was illegal. The list, they noted, is meant for businesses, foreign nationals, and property—categories that Tornado Cash doesn’t fall into.
The Fifth Circuit then prompted the Texas District Court to grant a partial summary judgment in favor of the plaintiff, effectively ruling that current laws don’t support sanctioning software like Tornado Cash.
In response, the Treasury is pushing back, trying to avoid a judgment that could limit its authority to sanction such immutable privacy software. Their argument? A judgment is unnecessary now that Tornado Cash is off the list. But without a firm legal ruling, the door remains open for future sanctions on similar software, including a potential re-sanctioning of Tornado Cash.
This reversal isn’t directly tied to the Samourai Wallet case, as those developers aren’t accused of evading sanctions. However, the criminal case against Tornado Cash developer Roman Storm carries weight for Rodriguez and Hill. It could set a precedent, considering they face accusations related to operating an unlicensed money transmitter and conspiracy to launder money.
Both Tornado Cash and Samourai Wallet are non-custodial software projects, traditionally seen as outside the purview of anti-money laundering regulations normally aimed at banks. If Storm is convicted in July, it could pave a smoother path for the prosecution of the Bitcoin developers.
Despite hopes that the new administration might abandon what some call a witch hunt on cryptocurrency developers, the stance seems unchanged, echoing Trump’s Treasury’s negative view on privacy code development.
CoinCenter highlighted last year that a pro-crypto stance doesn’t equate to pro-privacy or pro-financial independence. What we’re observing now is that while actions against firms like Coinbase and Uniswap are easing, individuals like Rodriguez and Hill face serious legal threats.
The Treasury justifies its actions as a crackdown on terrorism financing and cybercrime. Their statement following Tornado Cash’s sanctions lift emphasizes their commitment to thwarting bad actors in the digital asset space.
For the first time, the Treasury also cautioned users of privacy services, advising U.S. persons to be vigilant about the risks of such transactions.
Reinforcing this cautionary stance, Chainalysis, a blockchain surveillance company, advised organizations involved with mixer addresses to seek legal guidance regarding their obligations to OFAC.
Although using or participating with mixing services isn’t officially illegal, it seems the Treasury is keeping its options open for potential future actions against those involved with privacy services.
This stance shouldn’t come as a surprise. As digital assets become more entrenched in U.S. regulatory frameworks, the government prioritizes addressing any activities it considers illicit.
Treasury Secretary Scott Bessent echoed this view when discussing the reversal of Tornado Cash’s sanctions, emphasizing the intent to secure the digital asset industry from misuse by nations like North Korea.
While it’s alleged North Korea finances operations via cryptocurrencies, illicit funds make up a small fraction of the crypto world, according to Chainalysis, only about 0.14% of on-chain transactions.
Nevertheless, many use privacy services for legitimate reasons. With every transaction visible on the blockchain, these services protect individuals’ transaction histories and net worth, which is crucial for personal security.
Jameson Lopp’s repository of physical Bitcoin attack cases highlights the dangers of public Bitcoin info, which can lead to home invasions, kidnappings, and worse.
The government’s rigorous stance against privacy services seems disproportionate given the minuscule percentage of illicit activity. Yet, there appears to be little urgency from the Trump administration to address this imbalance and ensure American safety.
This article is a guest contribution by L0la L33tz. The views expressed are solely those of the author and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
