CoinCenter is exploring a legal challenge to Tornado Cash sanctions. According to them, OFAC is not legally allowed to sanction software tools. What if they sanction PGP encryption or email tomorrow, because Kim Jong uses PGP/passwords for email?

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CoinCenter has stated that they are exploring a legal challenge to the OFAC tornado cash sanctions. According to CoinCenter, OFAC has exceeded its legal authority by sanctioning tools instead of an entity like people/companies.

Tornado Cash is not an entity that controls the entry and exit of coins, who uses the sofware etc. It is the software itself. This is different from sanctioning centralized mixers like Blender which is clearly run by an entity which processes the mixing in a centralized manner.

Whereas Tornado cash is just code that exists on the network that operates in a decentralized manner.

According to Coincenter, even FinCEN has made this distinction earlier

In its May 2019 guidance document on virtual currency business models, the Financial Crimes Enforcement Network (FinCEN) draws a distinction between “providers of anonymizing services” (including “mixers”) and “anonymizing software providers”. They make it clear that service providers are subject to Bank Secrecy Act Obligations while software providers are not.

The next point made by Coincenter is that the sanction law allows OFAC to target “property” belonging to foreign nationals or entities, but Tornado Cash is not a “property”

…. the Tornado Cash Entity does not have a property interest in the Tornado Cash Application. It has no legal right to control that Application, and, perhaps more importantly, it has no physical ability to control that application. Moreover, that application is not even “property” in any reasonable sense of the word. The Application is non-proprietary software residing simultaneously on the computers of every person around the world running the Ethereum open source client. It is no more the property of the Tornado Cash Entity than the phillips-head screwdriver in every American’s home toolbox is the property of its inventor, Henry F. Phillips.

Perhaps more importantly, the statutory matter in question is not an American’s ability to get a license to use the tool, but rather the fact that adding a mere tool to the list (rather than adding an entity or the property of an entity) was outside the legal authority of OFAC under the IEEPA to begin with. Even if a general license was granted in this specific case there would be no legal way to stop OFAC from simply adding new non-property, non-entity designations beyond the Tornado Cash Application to the OFAC list in the future, despite there being questionable statutory grounds for such unprecedented sanctions. OFAC could incautiously add all manner of non-proprietary software tools to the list (e.g. PGP software for email privacy or even the entirety of Bitcoin itself) and then they could create a de facto licensing regime to selectively allow Americans to once again use these tools. This would be a very powerful tool for social control, and it seems divorced from the text and purpose of the underlying statute upon which OFAC’s authority is based. Speaking generally IEEPA allows the President to block U.S. persons from dealing in the property of a foriegn national; it is not a regime for dictating what types of software, books, music, or tools Americans should be able to use

Finally they outline their next steps:

First, we will seek to engage OFAC, share our views, and hopefully hear theirs. We have also had inquiries from members of Congress about the situation and we will continue to brief interested parties there.

Second, there are innocent Americans who have funds trapped at listed Tornado Cash addresses. We will do our best to help them apply for a license to withdraw those funds. In addition, the DeFi Education Fund has announced that it will be petitioning OFAC to issue a “general license” that would cover all affected persons without each having to file individually and we will support that effort.

Finally, we will begin exploring with counsel a court challenge to this action. Stay tuned.

https://www.coincenter.org/analysis-what-is-and-what-is-not-a-sanctionable-entity-in-the-tornado-cash-case/

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