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:
