From Van Loon v. Department of Treasury, decided Thursday by Judge Robert Pitman (W.D. Tex.):
This case is about Tornado Cash—but the parties disagree on how to characterize Tornado Cash. Plaintiffs contend that Tornado Cash is a decentralized, open-source software project comprised of a subset of smart contracts, or “pools,” on the Ethereum blockchain. In contrast, the government argues that Tornado Cash is an organization that runs a cryptocurrency mixing service. It is undisputed that the Department of Treasury’s Office of Foreign Assets Control added Tornado Cash to the Specially Designated Nationals and Blocked Persons (“SDN”) List. Plaintiffs argue that the designation exceeds the Department’s statutory authority over foreign nationals’ interests in property and violates the Free Speech Clause….
According to the government, cryptocurrency mixing services, known as “mixers” or “tumblers,” are designed to obscure the source or owner of particular cryptocurrency units, thereby allowing users to remain anonymous. A mixer customer typically directs mixer software to send a certain number of cryptocurrency units to a specific address that is controlled by the mixer, for a fee. The mixer then takes the sender’s cryptocurrency units and pools them together with the cryptocurrency of other users (i.e., “mixes” the cryptocurrency) before delivering the specified number of units to the requested destination. This renders it difficult to determine the link between a sender and recipient wallet account….
The International Emergency Economic Powers Act (“IEEPA”) authorizes the President to declare national emergencies “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States.” Once a national emergency is declared, IEEPA authorizes the President to:
[R]egulate, direct and compel, nullify, void, prevent or prohibit, any … transfer … of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest[,] by any person, or with respect to any property, subject to the jurisdiction of the United States[.]
Presidents have historically used this authority to impose economic sanctions on many countries, individuals, and entities, and those who provide support for malicious cyber-enabled activities…. On August 8, 2022, OFAC designated Tornado Cash pursuant to a [Presidential executive order]. The accompanying press release asserted that Tornado Cash “indiscriminately facilitates anonymous transactions by obfuscating their origin, destination, and counterparties, with no attempt to determine their origin.” OFAC noted that illicit actors often use mixing services like Tornado Cash to launder funds. The press release claims that Tornado Cash has laundered hundreds of millions of dollars’ worth of virtual currency since its creation in 2019, including hundreds of millions of dollars for the Lazarus Group, a North Korean state-sponsored hacking group. [Further factual details omitted. -EV] …
The court held that Tornado Cash was an entity that may be designated under the IEEPA:
The record shows that Tornado Cash is an association within [the] ordinary definition [of the term]. The entity is composed of its founders, its developers, and its DAO. The founders and developers “‘mostly do[ ] research and publish[ ] the code to GitHub.'” ). The DAO, on the other hand, is responsible for governing the platform, which includes “‘[a]ll deployments, protocol changes, and important decisions.'” Utilizing this structure, Tornado Cash has been able to place job advertisements, maintain a fund to compensate key contributors, and adopt a compensation structure for relayers, among other things. Substantial evidence supports the argument that founders, developers, and DAO constitute “[a] body of persons who have combined to execute [the] common purpose” of developing, promoting, and governing Tornado Cash….
Plaintiffs argue that Tornado Cash is not an entity but an autonomous software. However, as the Court notes above, OFAC identified both the software known as Tornado Cash and an entity formed by certain individuals. The record sufficiently supports OFAC’s determination that the founders, the developers, and the Tornado Cash DAO have acted jointly to promote and govern Tornado Cash and to profit from these activities….
The court concluded that “Tornado Cash has a property interest in the smart contracts,” and the court rejected plaintiffs’ First Amendment claims:
Plaintiffs argue that the government is prohibiting some of them from engaging in socially valuable speech because they, if not for the designation, they would use the Tornado Cash software to make donations to important political and social causes. Indeed, the First Amendment protects the right of individuals to donate money to social causes of their choosing. See, e.g., McCutcheon v. Fed. Election Comm’n (2014) (“The right to participate in democracy through political contributions is protected by the First Amendment, but that right is not absolute.”); NAACP v. Alabama ex rel. Patterson (1958). However, it does not protect the right to do so through any particular bank or service of their choosing, and Plaintiffs do not cite any case to the contrary.
In fact, Plaintiffs’ evidence does not sufficiently support their arguments. Plaintiffs claim that “[w]ithout the privacy afforded by Tornado Cash, users such as [Plaintiff] Almeida are hindered in expressing their views” of the Ukranian conflict. But Mr. Almeida’s affidavit does not describe such a hindrance, nor does it state that he has stopped donating to his preferred causes, that he would be unable to donate through other services, or that his speech has otherwise been chilled. Furthermore, Plaintiffs do not explain how the designation prevents them from using other services that may allow them privacy for their transactions.
Instead, Plaintiffs insist that the government may not interfere with their “liberty of expression … on the plea that it may be exercised in some other place,” simply because Plaintiffs “have alternate forums’ available to them.” While true, this principle applies primarily to public spaces. Tornado Cash, however, is not a public place or public forum; the cases Plaintiffs cite are inapposite.
Plaintiffs also claim that the designation chilled “the right to publish … source code,” which other circuits have held is protected speech. 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. Plaintiffs claim that using the code is impossible, since its sole function is to perform transactions. Plaintiffs’ characterization is misleading.
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. Finally, to the extent that the designation could serve to create a chilling effect, Plaintiffs have not claimed, let alone sufficiently demonstrated, that any Plaintiff in this suit has felt inhibited to use the open-source code. Accordingly, the Court will grant summary judgment for Defendants on this claim….