Last month, the U.S. Treasury Department lifted its sanctions against Tornado Cash, prompting renewed calls for the Trump administration to dismiss charges against Keonne Rodriguez and William Lonergan Hill, developers of the Samourai Wallet, who are currently facing prosecution in New York. However, what many may overlook is that the Treasury’s decision regarding Tornado Cash also sheds light on its position concerning privacy services, and the outlook appears unfavorable.
### Treasury’s Sanctions Reversal and Legal Implications
The Treasury’s decision to remove Tornado Cash from the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) list came in the wake of a lawsuit filed by Tornado Cash users in Texas, known as Van Loon v. U.S. Department of the Treasury. The plaintiffs argued that the sanctioning of the software was both unlawful and a violation of free speech rights. The Fifth Circuit Court of Appeals ruled in favor of the plaintiffs, determining that software like Tornado Cash does not fall under the categories of entities OFAC is authorized to sanction. Consequently, the Texas District Court was instructed to grant a motion for partial summary judgment, establishing a legal precedent that prohibits the U.S. Government from sanctioning such software under the existing sanctions framework.
In response to this ruling, the Treasury is now attempting to counteract the judgment that could potentially limit its authority over immutable privacy software. The agency contends that the legal ruling is unnecessary since Tornado Cash has been removed from the OFAC list. Nonetheless, without a definitive judgment, the Treasury could still impose sanctions on similar software in the future or even re-sanction Tornado Cash.
### The Ongoing Legal Battles of Crypto Developers
The lifting of sanctions against Tornado Cash does not directly relate to the ongoing prosecution of the Samourai Wallet developers, as neither Rodriguez nor Hill faces charges of evading sanctions. However, the case against Tornado Cash developer Roman Storm is pivotal, as it could establish a legal precedent that affects Rodriguez and Hill, who are charged with conspiracy to operate an unlicensed money transmission service and conspiracy to commit money laundering. Both Tornado Cash and Samourai Wallet are non-custodial software projects, which are generally considered exempt from the anti-money laundering regulations that typically apply to banks. If Storm is convicted, it could significantly simplify the government’s efforts to prosecute the two Bitcoin developers.
While some hoped that the new administration would bring a halt to the previous administration’s aggressive stance toward cryptocurrency developers, it seems that the current Treasury Department is equally unsupportive of privacy-enhancing technologies. As CoinCenter noted, a pro-cryptocurrency administration does not automatically equate to one that champions privacy or financial freedom. This situation becomes evident as legal actions against “crypto casinos” like Coinbase and Uniswap are dropped, while developers of privacy software like Rodriguez and Hill continue to face severe legal challenges.
### The Treasury’s Justification for Prosecution
The Treasury seems to justify these prosecutions based on its stringent approach to combatting terrorist financing and cybercrime. In its announcement regarding the reversal of sanctions on Tornado Cash, the agency emphasized its commitment to using its authority to disrupt the financial activities of malicious actors exploiting digital assets.
For the first time, the Treasury also cautioned users of privacy services, advising that “U.S. persons should exercise caution before engaging in transactions that present such risks.” This sentiment was echoed by blockchain surveillance firm Chainalysis, which advised organizations with connections to mixing services to seek legal guidance regarding their obligations to OFAC. The message is apparent: while utilizing mixing services isn’t explicitly illegal, the Treasury appears to be keeping its options open to potentially pursue legal actions against individuals involved with privacy services in the future.
As previously discussed in various Bitcoin Magazine articles, this stance was anticipated and is a direct outcome of the increasing integration of digital assets into U.S. regulatory frameworks. The growing significance of Bitcoin to the government makes it imperative to eliminate any activities deemed illicit.
### The Broader Implications for Privacy Services
Treasury Secretary Scott Bessent has articulated that safeguarding the digital asset sector from misuse by rogue states like North Korea is crucial for establishing U.S. leadership and ensuring that American citizens benefit from financial innovation. While there are concerns about North Korea’s alleged use of cryptocurrency for financing, data from Chainalysis indicates that illicit funds represent a mere 0.14% of all on-chain transactions.
The rationale for using privacy services is multifaceted, as every transaction is recorded on a public ledger. Privacy tools help users maintain confidentiality regarding their transaction histories and net worth, which can be vital for personal security. As highlighted by Jameson Lopp, public knowledge of one’s Bitcoin holdings can lead to severe consequences, including violent crimes.
The government’s intensified focus on privacy services seems disproportionate when considering the minimal percentage of illicit activities. However, the current administration appears to remain steadfast in its approach, showing little urgency to protect American citizens and advocating for the freedom of developers like Samourai.
