Tornado Cash Civil Decision Limits the Reach of the Treasury Department’s Actions while Skirting a Full First Amendment Analysis

A District Court recently considered a civil claim that the Treasury Department overstepped when it listed Tornado Cash on the U.S. sanctions list. This claim took some steps, if not enough, to address EFF’s concerns about coders rights.  

In the case, Van Loon v Department of the Treasury, EFF argued in an amicus brief that the government needed to do more to ensure that coders’ First Amendment rights were protected when it took the unprecedented step of placing an open-source project on the Specially Designated Nationals (SDN) sanctions list.  That led Github to temporarily take down the project and essentially halt all additional work on it.  While the government later clarified in an FAQ— issued after EFF and others had publicly complained— that it did not intend to prohibit “discussing, teaching about or including open source code in publications,” we argued that this didn’t go far enough to protect coders. We urged the Court to require the Treasury Department to follow the strict limits of the First Amendment and to be more clear and careful in its actions.

The District Court did not agree with us that the government overstepped the First Amendment here, and dismissed the case overall.  But, in interpreting the government’s actions, it did make even more clear that the scope of the sanction did not include coders developing the code. The Court said:   

Similarly, amicus curiae Electronic Frontier Foundation argues that OFAC’s designation has had a chilling effect on certain code developers. However, OFAC’s designation blocks only transactions in property in which Tornado Cash holds an interest, such as the smart contracts. It does not restrict interaction with the open-source code unless these interactions amount to a transaction.  . . .  Developers may, for example, lawfully analyze the code and use it to teach cryptocurrency concepts. They simply cannot execute it and use it to conduct cryptocurrency transactions.

While we are disappointed that the Court did not conduct a full First Amendment analysis and directly require the Treasury Department to take more care, both here and in any future situations where open source projects interact with federal sanctions laws, the Court’s analysis should give anxious coders some relief.  The Court clearly draws a sharp line between actually using the code to conduct transactions and the role of coders in developing and using the code outside of actual transactions. EFF will continue to monitor this case and others where coders are put at risk.

In other Tornado Cash news, the government issued indictments against two of the key developers of Tornado Cash recently for money laundering.  This is another area where we will be watching closely to ensure that any prosecution is not based upon merely coders developing tools, but instead are targeted at actual illegal activity and transactions.