In brief
- U.S. Congressman Tom Emmer has written a letter to Treasury Secretary Janet Yellen regarding its recent sanctions on Ethereum coin mixing service, Tornado Cash.
- Emmer suggests that banning smart contract-powered software goes against FinCEN precedent, and asks several questions about the Treasury’s decision.
Earlier this month, the United States Treasury placed sanctions on Ethereum coin mixer Tornado Cash, effectively banning the tool in the country due to alleged facilitation of money laundering. The move was deeply controversial in the crypto space, however, and now a U.S. Congressman has questioned the Department of the Treasury’s actions.
In a letter shared via Twitter today, U.S. Representative Tom Emmer asked Treasury Secretary Janet Yellen to explain why the department sanctioned Tornado Cash, which is a service that runs on smart contracts—i.e. the code that powers autonomous, decentralized apps—rather than a centralized entity that is actively operated by people.
“The sanctioning of neutral, open-source, decentralized technology presents a series of new questions,” wrote Emmer, “which impact not only our national security, but the right to privacy of every American citizen.”
The Treasury’s Office of Foreign Assets Control (OFAC) added the Tornado Cash website and a list of Ethereum wallet addresses to its Specially Designated Nationals list, which means that American citizens are no longer legally allowed to use the tool or interact with those addresses.
OFAC claimed that Tornado Cash had been used to “launder more than $7 billion worth of virtual currency since its creation in 2019.” But that figure may be inaccurate. While a total of $7 billion has been moved through Tornado Cash, most of it was done so for legitimate reasons, with only $1.5 billion associated with crime or money laundering, according to crypto analytics firm Elliptic.
Nevertheless, OFAC specifically called out the use of Tornado Cash by the North Korean state-sponsored hacking group Lazarus to launder more than $96 million worth of cryptocurrency after hacking the Harmony Bridge in June.
Tornado Cash works by mixing together coins from multiple transactions across multiple users, and then outputs the correct amounts to the designated wallets. It obscures the movement of assets on the public Ethereum blockchain.
Some have used Tornado Cash to keep their transactions away from prying eyes, as it’s possible for Ethereum wallets to be traced back to people based on transaction data. Others, including Ethereum creator Vitalik Buterin, have used Tornado Cash to obscure donations—as he said he did with Ukraine amid Russia’s ongoing invasion.
Emmer’s letter asks several direct questions of the Treasury Department and OFAC, echoing some of the concerns discussed across the crypto space. The Minnesota Republican wrote that he “shares OFAC’s concerns” about the illicit use of Tornado Cash, but added, “Nonetheless, technology is neutral, and the expectation of privacy is normal.”
He also points to precedent from the Treasury’s Financial Crimes Enforcement Network (FinCEN) from 2019 that suggests that anonymizing software isn’t “subject to Bank Secrecy Act obligations.” While he notes that “OFAC is not bound by FinCEN regulations,” there is a Treasury Department definition of coin mixers that potentially conflicts with its sanctions.
One of the most interesting questions in the letter regards the responsibility of U.S. citizens regarding transactions sent through Tornado Cash.
It’s possible to send funds through Tornado Cash to any Ethereum wallet without permission. Someone did just that after the ban, sending small amounts of ETH to celebrities and other public figures—like Jimmy Fallon and Logan Paul—with publicly known wallet addresses. It was apparently done to prove a point about the challenges of enforcing the ban.
“Are otherwise innocent U.S. persons who receive unsolicited funds from SDN-listed addresses in breach of law or regulation?” Emmer asked in his letter. “What actionable steps should people in this situation take to comply with sanctions obligations while recognizing that on blockchain, individuals can receive funds unknowingly and unwillingly?”
Emmer also asked about how smart contract-powered tools like Tornado Cash can reasonably be given due process and the ability to appeal sanctions, among other queries.
The Treasury’s Tornado Cash ban has yielded a lot of questions from crypto users in recent weeks. We’ll see whether a sitting congressman’s added voice can generate some answers.