Seems like a forced defensive move given the new Coinbase sponsored lawsuit.
Treasury would probably prefer these freedom aren't even given, but they'll lose on these points so badly that it's face-saving to concede first.
Treasury would probably prefer these freedom aren't even given, but they'll lose on these points so badly that it's face-saving to concede first.
This is how it always worked. Go back to the original articles and read the comments defending OFAC. The code was never sanctioned. The project was. The fact that the project involves an instance of code on an immutable blockchain is mumbo jumbo.
Treasury knows it has standing, and how. They don't give a squib what you do with the code. As long as you don't facilitate transaction processing with it (i.e. money transmitting) with it. The legal teams of the Crypto world basically have to convince the Supreme Court that the Executive does not have the right to engage in economic foreign policy.
I don't see that happening.
https://www.coincenter.org/analysis-what-is-and-what-is-not-...
Then the creator of TC stepped away.
The node operators took the gas fees in exchange for putting the brick on their accelerator and validated the brick contracts.
Who's to sanction here? Honestly the node operators running the Ethereum virtual machine 'car' look like the closest human to hold accountable, if that's the desirable outcome. Continuing our logic, ethereum should basically be shutdown if the runners of the brick program are to be held accountable, because that's basically every node.
For better or worse, the government seems to be intent on making a lesson out of the Tornado Cash developer, rather than attempting (probably pointlessly) to shut down all of Ethereum. The point seems to be to send a message: if you publish the brick blueprint, you will be considered the entity responsible. This accomplishes both of the government’s goals: it disincentives future attempts to launder money through smart contracts, and it avoids a protracted legal and technical battle over individual cryptocurrencies and their networks.
Edit: And there are clear parallels in existing legal reasoning: we do not prosecute steel factories for following a client’s specification faithfully, even if it’s later revealed that the specification was in furtherance of something illegal to manufacture (like an unregulated weapon). The exception is when the factory goes to unusual lengths to turn a blind eye, which the government might present evidence to argue negligence or conspiracy.
It'll really only take getting enough of the right ears to get this recognized. Make no mistake, it was never the intent of the United States Government to leave the door open to everyone to operate their own personal money transmitter.
That's actually something I like about this to be honest. There really is no avoiding coming to terms with the fact that structurally speaking, the U.S. regulatory edifice outsources to private industry. All the typical "It's a private business, not the government" people need a reality check. This is how regulation works.
Except Treasury has released guidance saying the opposite. Not sure what would make one so giddy about a mandatory and opaque financial surveillance apparatus being a part of daily life.
The part where it becomes common knowledge and we actually have a more public discussion on whether it's a good idea in the long run. I actually feel quite squicky about the fact that most people don't seem to realize there's this orchestrated black hole capability strategically wielded with very little recourse by the Executive.
The 'honest' reader here should realize they aren't the 'good guy'. They're just someone a prosecutor hasn't found convenient to destroy yet.
* A separate division of the Treasury (FinCEN) makes a policy distinction between various groups of users/operations of transaction anonymization software. The authors concede that OFAC is not bound to this policy distinction.
* OFAC's stated mission is to bring about a "positive change in behavior." They claim that this can't happen with an autonomous contract, neglecting that the entire point is to scare developers away from deploying and using these kinds of contracts (which is indeed, from the Treasury's perspective, a positive change).
Later on, they make a separate argument that inclusion in the OFAC list exceeds statutory authority under IEEPA. The claim there also relies on autonomy: that the "Tornado Cash Entity" is not meaningfully an operator of the "Tornado Cash Application," because the former cannot cease operation of the latter.
This splits an exceedingly fine hair: it requires the Treasury to accept that the Tornado Cash Entity, despite being the prime mover for the Tornado Cash Application, is somehow not responsible for the thing it wrought. In other words, the "brick on the accelerator" argument.
Later, there's some more plausible hair splitting over whether the term "property" correctly applies, despite there being little to no disagreement over whether North Korea actually did launder a bunch of money through the Tornado Cash Application. So it comes down to whether the Treasury (and a jury) can be convinced that being the prime mover somehow does not matter.
I’m with you here. If I build a machine with no off switch that kills anyone who approaches it, even though it’s now completely out of my control… there’s a pretty clear connection between me and my creation.
I have a feeling that people are going to be disappointed when “I built this autonomous thing and because I have no control over it I can’t be held responsible for it” is actually interpreted by the courts as “you built it and are responsible for every crime it commits”
Either ethereum virtual machine operators at large is criminal organization or it's an endless game of a cat trying to catch its tail.
This is completely thrown out in reality, because Courts've already handled this. If you create a thing that does harm (booby trap), you are still liable for damages incurred as a result of it's fundamental operation as you created the danger. Also see the case withregards to Alfred Anaya to dissuade yourself of the notion that they'd never go after someone for bringing into existence an instance of a tool key in facilitating known criminal activity.
Besides which, Tornado.Cash screwed up as far as I'm aware, because they were financial beneficiaries of the operation of the mechanism. This is also something Courts are quite adept at being able to see through in spite of obfuscatory application of tech. So there is a tangible link there to anchor on both in the sense that the Entity's assets get sanctioned, and any addresses involved in the technical implementation get sanctioned.
Anyone spinning up anything recognizably similar, (and I assure you, a recognizer that runs over the chain to find similar patterns of behavior is well within technical capabilities), will find themselves needing to resort to more and more elaborate constructs as more examples of the underlying implementation pattern of activity become known. This'll converge to becoming Yet Another Form of Financial Engineering Arms Race (tm).
It is very difficult to outpace Nation states. Especially when you consider they are attractive pass times to those who like dealing with large distributed problems once one gets beyond a certain level of financial independence.
TL;DR: Nobody thinks that the Tornado Cash smart contracts are themselves persons. The government is clearly operating along the reasoning that a human being had to be (and was, in fact) in the loop as part of deploying the smart contracts. That brings us back to the initial analogy I used: you can't absolve yourself by building a robot that does the crime for you.
But the argument isn't at all about absolving the robot builder. In fact, they explicitly take no view on whether the sanctions against the Tornado Cash entity are justified. They also do not take a view on whether the government would be justified in prosecuting the individuals behind Tornado Cash.
They are saying the government does not have the statutory authority to sanction the robot you built.
(Defending the TCE also continues below that, on a mostly irrelevant and unargued tangent about software IP.)
"So there is potentially an entity called Tornado Cash that is controlled by certain individuals, and the web address and some of the Ethereum addresses in the notice can be thought of as either pseudonyms for that entity or, alternatively, as its property. At this point, we’re not offering an opinion on whether it was appropriate to sanction that entity—we do not know all the facts that have led to this action—but we would agree that there may be an entity behind those donation addresses and that said entity may be legally eligible for listing. "
In short: they're trying to have it both ways, and it's not coming off well. If they had restricted their attention to just the TCA the argument would be more interesting, but ultimately still not compelling: everybody involved understands that there were some humans who decided to "pull the trigger" and deploy the TCA.
> Interestingly the node operators (the people ACTUALLY EXECUTING TC, even at this very moment) haven't been sanctioned at all
Because the crime is not "executing TC", the crime is (certain) financial transactions. TC code is just the means by which it is executed, and the node operators do not intend to execute a specific financial transaction and do not specifically benefit from it. Just like, for example, if you are going to buy illegal drugs, and you send the payment for it via Venmo and then send the stash location using Gmail, Venmo and Google would not be liable for the drug transaction (even if Venmo charged a transaction fee) because for them it's just common transaction like any other. Same would go for node operators.
> In fact many of the people interacted with TC don't even have possession of the gun
It doesn't matter. What matters is who caused the illegal activity to happen. I mean, if you had a chain that is dedicated to money laundering or another illegal activity, and had no other uses whatsoever - it could actually earn OFAC designation probably by itself, as a whole, and then using it and running the node might become a crime. But I don't think OFAC intends to argue that's the case with Ethereum - it's pretty clearly not true, as most Ethereum users and nodes are perfectly happy to follow the law and never do anything illegal.
So who is the counterparty then? The other random guy(s) who deposited the ETH you end up with?
Using the venmo analogy, it would be the actual venmo corporate computers EXECUTING the tornado cash program.
It seems a little odd to me here to not hold the people executing the transaction program accountable if it's on the sanction list explicitly noting TORNADO CASH is OFAC sanctioned. Remember those nodes running the ethereum virtual machine are validating and computing the transaction, and thus the entire foundation of ethereum would be guilty per your assessment, no?
> thus the entire foundation of ethereum would be guilty per your assessment, no?
No, why would it be? Again, the Ethereum system did not initiate the specific illegal transactions - it was used (without their specific cooperation or knowledge) to perform the transactions, it's very different.
Because the law against murder was broken.
> and the police can confiscate the gun and the bullets
Says who? They can only do this the law provides this mechanism. If there isn't, the gun remains the property of the owner (even if the owner is now a convicted murderer).
> but even then the government could claim to regulate an access to it - just as it could, for example, restrict access to an erupting volcano if it wanted
They could, if Congress has passed a law giving the government this regulatory power.
I get that people might feel "autonomous" is a cop-out, but legally, the argument is narrow. It isn't about people getting a way with crime. The crypto currency community would certainly be opposed to Tornado Cash relayers facing money laundering charges as well, but here they are merely saying that the sanctions authority does not extend to the sanctioning of things. And well, it either does or it doesn't. If Iran secretly plants a cherry tree in Central Park, is OFAC allowed to sanction the cherry tree, and prevent people from eating the cherries? They are arguing no, because OFAC has no authority to sanction trees.
That's the semantic game. If they have authority to limit financial transactions by people, then they have authority to limit financial transactions by people facilitated by things. And things can not (at least not yet, not until general AI exists and recognized as independent legal entity) initiate transactions by itself - somebody caused them to do that, by setting off chain of events that resulted in that transaction. That person can be prosecuted if the transaction is illegal.
> If Iran secretly plants a cherry tree in Central Park, is OFAC allowed to sanction the cherry tree
What you mean by "sanction the cherry tree"? If people use this tree to, say, exchange money (OFAC does not regulate eating, AFAIK) - for example, by hanging sacks with money on its branches - then yes, OFAC would be able to prohibit this way of transferring money to Iran as well as any other way of doing it. Why not?
> They are arguing no, because OFAC has no authority to sanction trees.
It has authority to sanction financial transactions. The means by which they are executed is secondary - it's be stupid for Congress to give them authority to regulate transactions made in one way, but ignore same transactions with same effect made in slightly different way. I don't think anybody would have any luck convincing the courts that was the lawmakers' intent.
Another example, the tool that OFAC has here that we are talking about is their designation power, and the restrictions that follow such a designation are partly set in the statute defined by Congress, not something that OFAC has the power to make up.
> Then yes, OFAC would be able to prohibit this way of transferring money to Iran as well as any other way of doing it. Why not?
Transactions with the target entities ("Iran") are already restricted, whether through a crypto transfer or a tree-branch exchange. This is because OFAC has used its proper powers to designate those targets. The question at hand in this hypothetical is whether OFAC has the power /to designate the tree/ itself additionally, thus making it illegal for you to hang a sack of money there, regardless if you are transacting with Iran or just waiting for your cousin to pick it up.
Does OFAC have the power to say "we are designating the Hawala system"?
Probably not because "Hawala system" is not an entity that can be defined - it's like banning "cryptocurrencies" in general. OFAC wouldn't be able to do that - because it's not a specific definable entity. Designating a specific hawaladar would be possible for them (though likely not very effective).
The obligatory reference to rubber hose cryptanalysis is always something to keep in mind.
One easy argument is that there is no way to prove that Tornado Cash contracts are foreign assets at all. Ethereum nodes do not know which node - or its geographical placement - saw the deployment transaction first. So it is just as easily deployed from the United States and operates from the United States most of the time, or simultaneously all the time, as all nodes execute the updates states (or Tornado Cash and every contract) and many/most are in the US.
The US has other enforcement tools. OFAC here wasn't it.
>Access to the U.S. electronically facilitated financial system is one of the strongest forms of soft power projection on Earth.
>This is made possible through money transmission being regulated.
>Part of being an authorized money transmitter is compliance with OFAC sanctions on a strict liability basis. OFAC sanctions are not constrained by by normal constraints on domestic law enforcement. You can end up on the OFAC list. You can appeal it, but the burden of proof is on you, and the Government does not have to share with you why you got put on there in the first place.
>Sanctions are often diplomatic. Courts will not say the executive does not have standing, as it's enumerated right in the Constitution, that is the Federal Government's job.
>Violation of sanctions as a U.S. citizen is criminal. While it is not necessarily practicable yet to ascertain which node originated a particular block, it is not impossible to sufficiently instrument enough of the network to make such determinations possible, and eith PoS tending to centralize, the value of setting up said monitoring to facilitate enforceability is high, even if only for investigative/intelligence community purposes. Remember, these are the people who brought you PRISM.*
>Any violations of sanctions will be transparently evident on the blockchain. The receiving address of the value from the sanctioned address will be added to the SDN.
>The overall network effect is such that no one that desires to do business in the U.S. will cash out your coin.
>No technical impossibilities exists that will prevent this eventual outcome.
The only X factor, is how much time it will take for the tooling to get there
Does anyone else seriously think it's a complete coincidence the rise of crypto coincided with the rising international cooperation with FATF and other AML/KYC oriented agreements worldwide post 9/11? The ~2010-2020 era was some of the biggest movement in nations coming into compliance with FATF's assessments, I don't think it's an accident crypto exploded during that period.