A federal judge has ruled that the U.S. Treasury Department was within its authority to sanction Tornado Cash, a crypto mixer used by North Korea to launder stolen crypto. Judge Robert Pitman of the Western District of Texas said in a written order that the plaintiffs, including Coinbase employees and Ethereum supporters, had not successfully argued that their First Amendment rights or the Administrative Procedures Act had been violated.
It is undisputed that Tornado Cash uses smart contracts to provide a layer of privacy for its users by allowing them to deposit crypto assets in one wallet and then withdraw assets from a different wallet, Pitman noted. He found that Tornado Cash does meet the bar for being seen as an entity, composed of the project’s founders, developers, and the DAO.
This is the second case where the existence of a decentralized autonomous organization (DAO) was used to find that a federal regulator was within its limits to bring an enforcement action against a crypto entity. Judge William Orrick, in the Northern District of California, found that Ooki DAO was an unincorporated association for the purposes of a Commodity Futures Trading Commission lawsuit.
The judge also found that Tornado Cash did have a property interest in the smart contracts, pointing to fees generated in TORN tokens as one example. He said that the code for Tornado Cash’s smart contracts were not only deployed, but convey[ed] an ongoing benefit…in the form of fees transmitted to the DAO.
Coinbase Chief Legal Officer Paul Grewal has already said the exchange, which funded the original lawsuit, would support an appeal. OFAC still faces another suit from Coin Center over the Tornado Cash sanctions.