Complaint Illustrates Existential Fight Over OFAC’s Ability to Sanction Open-Source Code – and OFAC Responds (?) By Issuing FAQs on Tornado Cash Use
Last month, the Office of Foreign Assets Control (“OFAC”) sanctioned Tornado Cash, a virtual currency “mixer” operating on the Ethereum blockchain which allegedly has been used to launder the virtual currency equivalent of more than $7 billion since its creation in 2019, by adding it to the Specially Designated Nationals and Blocked Persons List (the “SDN List”). The initial response from certain elements of the crypto community was, not surprisingly, negative: for example, an 8/15 Coin Center whitepaper and an 8/23 letter from Congressman Tom Emmer to Treasury Secretary Janet Yellen argued that OFAC lacked the legal authority.
In the intervening month, things have heated up considerably. Last week, six plaintiffs filed a complaint against OFAC and the Treasury Department, as well as Secretary Yellen and OFAC Director Andrea Gacki in their respective official capacities, in the Western District of Texas (Waco Division), seeking declaratory and injunctive relief – specifically, that the court declare OFAC’s addition of Tornado Cash to the SDN List as unlawful, and permanently enjoin the enforcement of the designation and any sanctions stemming therefrom. Plaintiffs allege that venue is proper due to Plaintiff Joseph Van Loon’s residence in Cedar Park, TX, within the Western District. Plaintiffs’ decision to opt for the Waco Division, rather than the Austin Division, may be intentional, because the Waco Division has only one judge, who until recently has been the go-to choice for patent litigation plaintiffs.
The complaint has and will continue to draw considerable attention. It lays out the framework for a fascinating question: under existing law, can OFAC act directly against a piece of technology such as open-source code? Or, must OFAC pursue enforcement, through a more difficult, piece meal and time-consuming process, only against specific individuals and specific legal entities? Presumably, both sides will invoke broad policy-related and equity-related arguments regarding “privacy,” “transparency,” and the need to fight crime. However, the key issue may come down to a more traditional and rather dry legal issue of parsing the meaning of statutory language.