The U.S. Treasury Department’s sanctions against the crypto mixer Tornado Cash have stirred up the whole sector. Some industry representatives claim that the OFAC exceeds its authority by imposing sanctions on smart contracts and arresting the developer.
The U.S. sanctions against Tornado Cash have sparked disapproval from industry experts and users of the service, as well as concerns about the constitutional legality of sanctions against the crypto mixer. So, the news of the recent arrest of one of the Tornado Cash developers was called a “dangerous” precedent and a turning point in the crypto industry.
Last week the U.S. Office of Foreign Assets Control (OFAC) included over 40 Tornado Cash’s crypto addresses on its SDN list, linking them to money laundering and illegal activity. Soon after, Tornado Cash co-founder Roman Semenov’s GitHub account was blocked, and a couple of days later, Alexey Pertsev, one of the developers of the mixer’s smart contracts, was arrested in Amsterdam.
Pertsev’s arrest, charged with involvement in concealing criminal financial flows and facilitating money laundering through Tornado Cash, sparked a wave of outrage in the community. Ryan Sean Adams, a founder of Mythos Capital and Bankless, was the first to condemn the developer’s arrest, stressing that he was only put “in jail because bad people used his open source code.” And Adam Cochran, partner at Cinneamhain Ventures, commented on the developer’s arrest: “Privacy is under assault.” He accused the OFAC of abusing its power.
Stani Kulechov, a founder of Aave, echoed the same opinion, arguing that “this arrest makes all privacy developers a target,” as well as users of online privacy tools. Banteg, a lead developer of the DeFi(YFI) ecosystem, called the OFAC’s action illogical, comparing it to arresting “a founder of a pressure cooker making company for facilitating terrorism.”
Messari CEO Ryan Selkis criticized the regulator’s actions, claiming that the U.S. government’s cryptocurrency policy punishes innovators.
Representatives of the non-profit blockchain advocacy group Coin Center also condemned the OFAC’s behavior. According to Coin Center CEO Jerry Brito, the U.S. Treasury Department’s action essentially imposes “a ban on a particular open source software tool.” His colleague, research director Peter Van Valkenburgh, expressed concern about how the OFAC would enforce such sanctions going forward, suggesting that this approach would allow the regulator to punish anyone interacting with blockchain.
Nansen analyst Andrew Thurman said the U.S. sanctions are an unprecedented case. According to him, the code remains just a code “until a North Korean uses it,” at which point it becomes “a legally-recognized human” who falls under sanctions and its developers go to jail. The result is that the OFAC could target all smart contract developers.
Hudson Jameson, an independent blockchain consultant and former Ethereum Foundation employee, reports that the impact of the U.S. sanctions on privacy protocol developers could be enormous because the government and regulators are behind the curve and don’t understand technological innovation.
Members of the Tornado DAO, the community that manages the protocol, have discussed raising money and hiring lawyers to fight the sanctions, up to and including filing a lawsuit with the U.S. Supreme Court. However, there is no legal entity called Tornado Cash. That means, as MakerDAO’s Chris Blec noted, raising money to keep the mixer going could trigger more questions from the OFAC and open up new opportunities for the regulator to intervene. According to Blec, the attacks on the mixer are a violation of a person’s privacy rights.
It’s worth noting that the forum discussion did not last long. Immediately after the arrest of Alexey Pertsev, Tornado DAO’s Discord and forum were closed. It remains unknown whether the server was removed by the developer of Tornado Cash or by Discord itself.
Recall that before imposing sanctions, the Office of Foreign Assets Control (OFAC) required cooperation from the cryptocurrency mixer Tornado Cash to limit illegal activities, but representatives of the site were limited to “imitation” of such cooperation, arguing for “preserving freedom through financial privacy.”
