In early May, during a court case regarding the legality of blocking the Ethereum mixer Tornado Cash, the U.S. Treasury compared holders of TORN tokens to terrorists (Al-Qaeda, designated a terrorist organization and banned in several countries). Crypto enthusiast Chris Blec drew attention to this.
US Treasury Department compares holding $TORN tokens to being a member of Al Qaeda.
Wow. pic.twitter.com/9cj3De3DHZ
— Chris Blec (@ChrisBlec) May 18, 2023
In the case materials, the plaintiffs argued that OFAC could impose targeted sanctions on illicit users of the service instead of blanket bans on all Tornado Cash transactions. According to them, a narrow group of TORN token holders did not necessarily agree to participate in the governance of Tornado Cash, and therefore should not fall within the reach of the agency’s sanctions.
However, officials contend that holders should bear responsibility for the actions of the sanctioned individual.
«OFAC would never need, for example, to identify every Al-Qaeda fighter, to demonstrate that it is an organization that could be subjected to sanctions», the document says.
The Treasury also contends that TORN holders “own” immutable smart contracts, and this allows them to extract some benefit.
Moreover, according to the agency, there is no constitutional right to transfer funds using a preferred service when other means are available.
«Those who want to use Tornado Cash can choose other legitimate means of private funds transfers, including traditional channels, such as banking services», said the defendant.
As a result of the hearings, the Treasury has defended its right to sanction the mixer at this stage.
The plaintiffs’ response to the agency’s objections is due by May 24.
In August 2022 OFAC placed on the sanctions list the Tornado Cash website, through which, according to the agency, criminals laundered cryptocurrency amounting to more than $7 billion. Of that amount, more than $455 million are linked to North Korea’s Lazarus Group.
On May 20, 2023, unknown individuals took control of the governance mechanism of Tornado Cash and began draining TORN tokens from the protocol’s smart contracts.