The popular crypto mixer Tornado Cash, which facilitates the anonymity of transactions, has lost a lawsuit over the US Treasury Department’s sanctions. The Treasury’s Office of Foreign Assets Control (OFAC) had accused the mixer one year ago of money laundering. 

According to the agency, Tornado Cash has laundered over $7 billion of crypto assets since its launch in 2019. As a result, OFAC sanctioned the crypto mixer’s wallets and other smart contracts related to its operations. 

However, many top shots in the industry stated that the US Treasury Department went beyond its authority in the sanction. Employees of Coinbase Global were among these crypto market participants who raised a motion against the OFAC’s sanction. But in the latest report by Bloomberg, a federal judge denied the motion on August 17.

Judge Robert Pitman Denies Coinbase-Sponsored Lawsuit

The federal judge of the US District Court for the Western District of Texas, Robert Pitman, refused to grant the request for summary judgment in the OFAC sanction. Six individuals had filed a lawsuit against the agency, arguing that its sanction against Tornado Cash affected other law-abiding crypto investors utilizing the service. 

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As such, they alleged that OFAC overstepped its bounds by blocking these wallets linked to the mixer. Also, Coinbase, which sponsored the lawsuit, believes that OFAC’s move to sanction smart contracts was wrong. 

It is not surprising that the exchange reacted against the smart contract sanction. The technology is critical in the crypto ecosystem as it automatically facilitates the exchange of coins without intermediaries. As such, Coinbase believes that sanctions will affect the inflow of investments in crypto assets. 

But according to Judge Pitman, OFAC was right in its determinations. He noted that “OFAC’s determination that the smart contracts constitute property, or an interest in property, is not plainly inconsistent with the regulatory definition of those terms.”

According to the judge, smart contracts are like vending machines, given that it also operates without human intervention. 

To that effect, Pitman wrote:

Vending machines are examples of unilateral contracts. And like vending machines, a smart contract is a tool that carries out a particular, predetermined task. The fact that smart contracts do so without additional human intervention, like a vending machine, or that they are immutable, does not affect its status as a type of contract and, thus, a type of property within the meaning of the regulation.

It seems the fight is far from over though as the Chief Legal Officer at Coinbase, Paul Grewal, said the exchange would support an appeal. 

Crypto Research Firm Links Tornado Cash Services With Hackers

The OFAC sanctioned Tornado Cash for facilitating money laundering for hackers supporting foreign terrorists, especially given that many hacking incidents involving the theft of crypto assets have always been linked to terrorist groups. 

For instance, on February 1, 2023, the popular digital-asset research company, Chainanlysis, reported that North Korean hacking groups stole up to $2 billion of crypto assets in 2022. It also confirmed that the criminals usually move the money through Tornado Cash to make it untraceable. 

These incidents and more led to the sanction against the crypto mixer. OFAC alleged that the service made it hard for authorities to trace stolen digital assets.