The Monero Policy Working Group (MPWG) is a loose quorum of individuals attempting to engage in regulatory and policy conversations regarding cryptocurrency, blockchain and distributed ledger technologies.

The MPWG is concerned by the sanctions levied against Tornado Cash on August 8, 2022.

Tornado Cash is a set of open source code and smart contracts on the Ethereum network. Tornado Cash is not operated by any individual or entity (unlike; its code is immutable and deterministic, while its use is permissionless and non-custodial. Coin Center has resources about how Tornado Cash works under the hood on their website.

It is worrying to see the Department of Treasury sanction an open-source and truly decentralized tool. Sanctions should focus on specific individuals and entities where there is substantially strong evidence that an actual crime has been committed or is about to occur, not on tools that can be used by anyone for both legitimate and, perhaps, some speculative nefarious purpose. The sanction against Tornado Cash prevents law-abiding U.S. citizens from getting access to the most popular privacy tool built on Ethereum, which can be detrimental to their personal safety, and, in the aftermath of the overturning of Roe v. Wade, may put women in danger of unjust prosecution.

Sanctioning open-source projects sets a bad precedent. Monero, Bitcoin, and Ethereum are open-source projects. While each network has some criminal use, the majority of use is ‘licit’ by OFAC’s own assessment. By sanctioning tools, the U.S. government is preventing all U.S. citizens from exchanging private information with otherwise completely allowed counterparties; arguably, this arbitrary and capricious governmental action is not narrowly tailored to achieve a particular legitimate aim and would constitute an unconstitutional overreach.

Further, this sanction has a chilling effect on researchers and developers working on critical privacy-preserving projects. Alexey Pertsev, a Tornado Cash developer, was arrested and is currently being held by Dutch authorities despite not being charged with a crime. What is even more surprising is that the FIOD press release makes reference to the Tornado Cash DAO, despite the fact that the DAO smart contract does not appear in the OFAC SDN list. The DAO and Pertsev are very distinct entities, given that the first is composed of over 9,000 individuals; importantly, the DAO has no power on the functioning of the Tornado pools, which are the main target of the sanction. This lack of clarity regarding who and what is being sanctioned exactly makes the whole situation difficult to follow and understand.

While this action was taken on non-U.S. authorities and while Pertsev’s situation may change over the coming months, the ultimate message by the U.S. to developers is clear: refrain from working on code we don’t like. Given that code is speech, as recognized by well established jurisprudence, the sanction against Tornado Cash is detrimental to the freedom of expression not only of Tornado developers and users, but also of all U.S. citizens. Furthermore, conflating privacy and pseudonymity on the one hand, and criminality on the other, makes everyone a potential criminal by default, while a free society is predicated on the assumption that people are innocent until guilt is proven beyond a reasonable doubt.

Privacy-focused research and development is essential for human rights. In the case of Monero, Bitcoin and Tornado Cash, privacy makes room for exchanges of information that are free from unwanted interference, thus allowing the emergence of a stronger and more interconnected society. The United States needs more privacy-focused researchers and developers, not less.

Coinbase-funded complaint

On September 9, 2022, six American citizens filed a complaint against the Department of the Treasury and the Office of Foreign Assets Control in U.S. District Court. This lawsuit is funded by Coinbase, who described their reasoning here and here.

The lawsuit aims for a judgment that the Tornado Cash sanction designation is null and void, is in excess of the authority granted to Treasury, and is unconstitutional.

We are pleased that these brave six individuals agreed to step up and publicly declare that they have used Tornado Cash for completely legal purposes. We believe this is a sensible court challenge that aims to clearly prevent the Department of Treasury from being able to sanction open-source tools.

We would like to thank these six individuals and Coinbase for supporting privacy rights and developers in this lawsuit, and we are heartened by the cryptocurrency industry’s broad support of Tornado Cash and privacy tools.

We encourage readers to make a tax-deductible donation towards ETH <> XMR atomic swap development, which allows two counterparties to trade with each other without counterparty risk and without a third party.

If you would like to get involved in the MPWG efforts, you can join our Matrix channel: #monero-policy

The Monero Policy Working Group (MPWG) is responsible for this content. This is not legal advice, and it should not be relied upon for any purpose by third parties. To learn more about the MPWG, click here.