OFAC Breaks Its Silence on Funds Locked With Tornado Cash
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OFAC Breaks Its Silence on Funds Locked With Tornado Cash

The document also offers clarification on which interactions with Tornado Cash are, and which aren’t sanctionable.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

On Tuesday, September 13th, the United States Treasury Department’s Office of Foreign Asset Control (OFAC) issued guidelines to citizens affected by the sanctioning of Tornado Cash. The new guidelines and instructions can be found on OFAC’s FAQ page.

OFAC Issues New Guidance on Tornado Cash

While last month’s sanctioning of the crypto mixer Tornado Cash has been met with outspoken criticism, OFAC has been mostly silent on the matter of how US citizens can “rescue” their funds from the blacklisted app. The agency broke its silence today.

According to instructions that can be found on the Treasury’s website FAQ page, under the “cyber-related sanctions” topic, investors will be able to file a request for a specific license from OFAC. This license is meant to release funds locked in transactions that have been initiated before the sanctions were placed but have remained incomplete.

For transactions involving Tornado Cash that were initiated prior to its designation on August 8, 2022 but not completed by the date of designation, U.S. persons or persons conducting transactions within U.S. jurisdiction may request a specific license from OFAC to engage in transactions involving the subject virtual currency.  U.S. persons should be prepared to provide, at a minimum, all relevant information regarding these transactions with Tornado Cash, including the wallet addresses for the remitter and beneficiary, transaction hashes, the date and time of the transaction(s), as well as the amount(s) of virtual currency.  OFAC would have a favorable licensing policy towards such applications, provided that the transaction did not involve other sanctionable conduct.

OFAC also clarified that funds received through Tornado Cash as a part of the practice known as “dusting” will have to be included in an annual report on blocked property, However, enforcement of belated and missing reports of such property will not be given high priority as long as they involve no sanctioned entities apart from Tornado Cash.

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The Tornado Cash Controversy

The decision to blacklist Tornado Cash has been altogether controversial. One of the main points Coin Center, and many others, have argued arguing is that, unlike other sanctioned entities, Tornado doesn’t have a management structure making it ineligible for a blacklist. Furthermore, with it mostly being a program running on Ethereum, it falls under the protection of the First Amendment.

Such a point of view has made actions like the arrest of one of Tornado’s developers undertaken by Dutch police shortly after the sanctions were announced even more troubling. Some of these arguments appear to have been heard by the Treasury, as Tuesday’s guidelines also explain that while interacting with Tornado is prohibited, interacting with its code isn’t.

While engaging in any transaction with Tornado Cash or its blocked property or interests in property is prohibited for U.S. persons, interacting with open-source code itself, in a way that does not involve a prohibited transaction with Tornado Cash, is not prohibited.  For example, U.S. persons would not be prohibited by U.S. sanctions regulations from copying the open-source code and making it available online for others to view, as well as discussing, teaching about, or including open-source code in written publications, such as textbooks, absent additional facts.  Similarly, U.S. persons would not be prohibited by U.S. sanctions regulations from visiting the Internet archives for the Tornado Cash historical website, nor would they be prohibited from visiting the Tornado Cash website if it again becomes active on the Internet.

Tornado Sanctions Challenged

Seeing how many see the sanctions against Tornado as setting a dangerous precedent, there have been multiple attempts to challenge the decision in court. One of the most recent attempts is being undertaken by six plaintiffs and numbers Coinbase among its ranks.

Already in August, others have started contemplating legal action against OFAC with regard to Tornado Cash. Tornado’s own DAO was very quick in proposing to take the Treasury to court due to the sanctions.

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Do you think most people will be able to rescue their Tornado Cash funds? Let us know in the comments below.