Casey Wagner

Crypto think tank Coin Center is making changes to its senior leadership, executive director Jerry Brito announced Monday.



Brito and Robin Weisman, senior policy counsel at the non-profit, will each step down from their respective positions at the end of the year. Both will remain on the board of directors, Brito said in a <a href="https://x.com/jerrybrito/status/1840783764793737359">post</a> on X.&nbsp;



Brito and Weisman have held their respective positions since Coin Center’s inception in 2014.&nbsp;



Peter Van Valkenburgh, Coin Center’s current director of research, will take over as executive director on Jan. 1. Landon Zinda, who currently serves as policy counsel at Coin Center, will become the advocacy group’s policy director, Brito added.&nbsp;



Read more: <a href="https://blockworks.co/news/coinbase-legal-team-hire">Crypto Hiring: Coinbase adds ex-SEC adviser to legal team</a>



“I’ll leave my role at Coin Center very proud of what we’ve accomplished over the last 10 years,” Brito said. “When we started in 2014, it was not clear that governments would allow bitcoin to flourish. Bitcoin and crypto are technically unstoppable, yes, but in the short-term there was a lot of harm that could have been done and that many tried to do.”



The news comes weeks after <a href="https://blockworks.co/tag/coin-center">Coin Center</a> won its appeal to re-open its 2022 lawsuit against the Treasury Department and Internal Revenue Service. The suit was over an <a href="https://blockworks.co/news/new-crypto-tax-reporting-obligations-us">amendment to the US tax code</a> that includes “digital assets” in the definition of cash, requiring individuals and businesses to report transactions exceeding $10,000.&nbsp;



Coin Center, who alleged the amendment violates the Constitution, had its case dismissed originally, but the appeals court found in August that some of Coin Center’s arguments have a legal leg to stand on.&nbsp;



Coin Center was also one of several crypto advocacy groups who filed <a href="https://www.coincenter.org/coin-center-files-a-court-brief-in-defense-of-tornado-cash-developer/">amicus briefs</a> in support of Tornado Cash and its founder in the US government’s lawsuit against two of the mixing services’ founders.&nbsp;



The letter of support followed Coin Center’s own lawsuit against the Treasury’s Office of Foreign Assets Control, which it filed after the US sanctioned Tornado Cash. The court <a href="https://blockworks.co/news/tornado-cash-fans-appeal">sided with the US government in 2023</a>, ruling that the agency was within its right to add Tornado Cash to its list of sanctioned entities.



Weisman in a <a href="https://x.com/RobinWeisman/status/1840784507051384864">post</a> on X Monday said she was “incredibly grateful for the opportunity” to build Coin Center.



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Coin Center

Coin Center senior staff to step down at end of year 

Macauley Peterson

Crypto industry policy group Coin Center is pushing back against pressure from Sen. Elizabeth Warren (D-MA), who questioned the group’s opposition to her anti-crypto legislative efforts.



Jerry Brito, Coin Center’s executive director, said there was no obligation to answer questions posed in a December letter from Sen. Warren which he argues “discourages participation in important public policy debates.”



Warren wrote to Coin Center, the Blockchain Association and crypto exchange Coinbase on Dec. 18. 2023, accusing them of “spending millions…to stonewall common sense rules designed to restrict the use of crypto for terror financing.”



Read more: <a href="https://blockworks.co/news/senator-warren-on-crypto-partnerships">Senator Warren says crypto firms shouldn’t partner with ex-government officials</a>



Brito rejected the characterization as inappropriate.



“Good policy-making can only happen when diverse voices and perspectives are earnestly welcomed and engaged, not baselessly accused of complicity in atrocities,” he wrote.



Sen. Warren is a proponent of both the <a href="https://www.congress.gov/bill/118th-congress/senate-bill/2355?q=%7B%22search%22%3A%22s.2355%22%7D&amp;s=2&amp;r=1">Crypto-Asset National Security Enhancement and Enforcement Act</a> of 2023 (the “CANSEE Act”) and <a href="https://www.congress.gov/bill/118th-congress/senate-bill/2669?q=%7B%22search%22%3A%22S+2669%22%7D&amp;s=4&amp;r=1">Digital Asset Anti-Money Laundering Act</a> of 2023 (DAAMLA), which she introduced.



Both measures were referred to the Senate Committee on Banking, Housing, and Urban Affairs in July, but have yet to be taken up and have no immediate prospect of becoming law.



Read more: <a href="https://blockworks.co/news/congress-2023-midsession-update">What happened in Congress in 2023: Mid-session update</a>



Coin Center regards both bills as “unfair, unworkable, and most importantly, unconstitutional.”



“The CANSEE Act would criminalize speech in the form of software publishing,” Brito wrote, while the DAAMLA “would also essentially ban software and permissionless blockchain networks.”



Therefore, he argues, opposing them “is not just proper, but indeed patriotic.”



If Sen. Warren is so concentrated about Hamas’ use of crypto for financing its activities, as her December letter contends, Brito questions why she does not focus on “securing more funding for FinCEN, the FBI and the DOJ’s crypto enforcement units.”



He also pointed to a bipartisan <a href="https://emmer.house.gov/_cache/files/1/e/1e5fb989-7fc2-4c14-85f1-3b82f11e0d38/45A1769B2F24FA8AD15E771E419AF171.congressionalletter.11.15.23.pdf">letter</a> from 57 members of Congress addressed to President Biden and Treasury Secretary Janet Yellen in November specifically on the subject of Hamas’ financing, as action Coin Center supported.



Read more: <a href="https://blockworks.co/news/lawmakers-clash-over-crypto-terrorism">Lawmakers butt heads on role of crypto in terrorist financing</a>



Senator Warren’s office was closed for the Martin Luther King Jr. holiday.



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‘Unfair, unworkable, unconstitutional’: Coin Center rebuffs Warren’s information request

Bessie Liu

Businesses and professional traders that receive over $10,000 worth of cryptocurrencies will need to report their transactions to the Internal Revenue Service.



Those who fail to comply may be guilty of felony offenses.



This reporting requirement, which became effective Jan 1, was initially part of Section <a href="https://www.govinfo.gov/content/pkg/USCODE-2022-title26/pdf/USCODE-2022-title26-subtitleF-chap61-subchapA-partIII-subpartB-sec6050I.pdf">6050I</a> of the <a href="https://blockworks.co/news/us-treasury-report-crypto-transfers-of-10000">Infrastructure Investment and Jobs Act</a>, passed in Congress in <a href="https://www.congress.gov/bill/117th-congress/house-bill/3684/all-actions">November 2021</a>.



Despite the potential legal jeopardy, there has been little guidance and clarification from the IRS around who is actually subject to reporting obligations.



This has raised concerns among traders, both amateurs and professionals, using decentralized finance protocols, which do not have a physical address or social security number, over whether the law applies to them.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I was unable to get the address and social security number of Uniswap which I swapped my ETH to ERC-20 token through, nor the protocol which gave me rewards for staking the token after. Please advise. <a href="https://t.co/hIbpW8zS3N">https://t.co/hIbpW8zS3N</a>&mdash; Will (@WClementeIII) <a href="https://twitter.com/WClementeIII/status/1742308436996403258?ref_src=twsrc%5Etfw">January 2, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Shehan Chandrasekera, the head of tax strategy at CoinTracker told Blockworks that 6050I applies to persons — could be individuals or businesses — who are in a “trade or business.”&nbsp;



“In simple terms, they need to run some type of activity in a business manner,” Chandrasekera said. “If you are a simple crypto investor (the majority of crypto users in the US), you don&#8217;t have a trade or business. Therefore, you have no impact from 6050I.”



In order to determine whether a DAO contributor falls under a &#8220;trade or business,&#8221; some questions to consider could include:



<ul class="wp-block-list">
<li>Is contributing to the DAO your full-time, self-employed job?&nbsp;</li>



<li>Is this your main source of income?&nbsp;</li>



<li>Do you do this full-time throughout the year?</li>
</ul>



“If the answer is &#8220;yes&#8221; to all these above (there could be other qualitative questions depending on the situation), you run a &#8220;trade or business&#8221; and could be subject to 6050I,” Chandrasekera said.



Similar logic can be applied to airdrop farmers, for example. If it is a person’s full-time occupation to farm airdrops, they are likely to be subject to reporting obligations, though a person who receives a one-off airdrop allocation is likely not subject to reporting obligations.



In the case of stakers, Chandrasekera explains that stakers on major exchanges who receive rewards but have a separate main source of income would likely not be required to report to the IRS. On the other hand, a person or organization that runs a professional staking pool and earns commissioned income will be subject to reporting requirements.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Who really has a &quot;Trade or business&quot; here and is subject to 6050I reporting? Taxpayer A: stakes on a major exchange and receives X amount of rewards each year. He has an FT job (main source of income). Taxpayer B: Runs an organized/professional staking pool. Promotes the pool…&mdash; Shehan (@TheCryptoCPA) <a href="https://twitter.com/TheCryptoCPA/status/1742335926968238366?ref_src=twsrc%5Etfw">January 3, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Still, the details of how individuals and traders engage in staking could also influence whether they have reporting obligations, Cameron Browne a certified public accountant (CPA) and partner at Darien Advisors, a Web3 crypto tax advisory practice, told Blockworks.



“If they&#8217;re trading through an entity and claim $10K in yield farming rewards, potentially.&nbsp; If they&#8217;re trading only as individuals, then not,” Browne said. “I have a few clients that trade through partnerships/corporations/s corporation, that would certainly subject them.”



As for now, there has not been clarification from the IRS on what is considered trade or business activity and what is not.&nbsp;



“This is a subjective standard that has connections to so many other sections of the IRS code. Some court cases have clarified this for facts related to the case. But, there&#8217;s no bright line rule,”&nbsp;Chandrasekera said.



This ambiguity has led crypto think tank Coin Center to take matters into their own hands. Already in June 2022, Coin Center <a href="https://www.coincenter.org/coin-center-has-filed-a-court-challenge-against-the-treasury-dept-over-unconstitutional-financial-surveillance/">filed a court challenge</a> against the U.S. Treasury Department, arguing the IRS provisions are unconstitutional.



“The really tricky nature of this requirement will become clear when someone makes such a donation but does so anonymously by simply sending us [bitcoin or ether] to our public addresses. Who could we possibly list as the sender in that case? These are all questions the Treasury Department has yet to answer,” Jerry Brito, the executive director of Coin Center, wrote in a <a href="https://www.coincenter.org/new-crypto-tax-reporting-obligations-took-effect-on-new-years-day/">blog post</a>.&nbsp;



Brito adds that the Coin Center team will continue to fight the law in court whilst determining how to be compliant for the time being.



Outside of crypto, many taxpayers prefer to be treated as a trade or business as it enables them to deduct business-related expenses, Chandrasekera noted, something that does not apply to what the IRS views as “hobbies.”



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Who’s affected by new crypto tax reporting obligations in the US?

Despite recent losses in court, interested parties and crypto industry players are not giving up their fight against Tornado Cash sanctions.&nbsp;



Plaintiffs in two cases are bringing their battle against the US Treasury Department to federal appellate courts. Joseph Van Loon, along with five other self-identified “Ethereum blockchain users” sued the US Treasury Department, Secretary Janet Yellen, the Office of Foreign Asset Control (OFAC) and OFAC Director Andrea Gacki in September 2022.



They argued that the US government was out of line when it sanctioned crypto mixing service Tornado Cash. <a href="https://blockworks.co/news/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash">Tornado Cash was sanctioned</a> in August 2022 under accusations the service facilitated the laundering of billions of dollars.



Read more: <a href="https://blockworks.co/news/tornado-cash-sanctions-expose-potential-defi-achilles-heel">Tornado Cash sanctions expose potential DeFi Achilles’ heel</a>



The mixing service has no place on the Specially Designated Nationals and Blocked Persons (SDN) list, the plaintiffs argue. The Treasury’s “unprecedented, overbroad action exceeds Defendants’ statutory authority, infringes on Plaintiffs’ constitutional rights, and threatens the ability of law-abiding Americans to engage freely and privately in financial transactions,” plaintiffs wrote in their September complaint.&nbsp;



A federal judge in Texas <a href="https://blockworks.co/news/judge-backs-us-treasury-tornado-cash-sanction">sided with the federal government</a> in August, rejecting the argument that OFAC was acting outside its jurisdiction.&nbsp;



“Plaintiffs urge the Court to reject broad definition, claiming that OFAC is not entitled to deference when defining unambiguous statutory terms,” Judge Robert Pitman wrote in his opinion. “But ‘interest in property’ is hardly an unambiguous term.”



Loon and his fellow plaintiffs, with the support of crypto exchange Coinbase, filed an appeal in Fifth Circuit on Tuesday, stating that the Pitman’s original ruling does not address the fact that Tornado Cash, which they describe as a piece of computer code, is not a “foreign national or person,” therefore putting it outside OFAC’s authority.&nbsp;



“Whether the Department’s inclusion of immutable smart contracts on the SDN List is contrary to law and in excess of statutory authority because the purported Tornado Cash entity does not have an ‘interest’ in the immutable smart contracts under [the International Emergency Economic Powers Act] and the North Korea Act,” Loon’s appeal states.&nbsp;



Coin Center, Bankless co-founder David Hoffman and others <a href="https://blockworks.co/news/coin-center-sues-over-treasurys-tornado-cash-sanctions">filed a lawsuit against the same federal parties</a> in October 2022.&nbsp;



Read more: <a href="https://blockworks.co/news/tornado-cash-privacy-prevention">Tornado Cash got wrecked, and we could have prevented it</a>



Like in Loon’s case, a federal judge in Florida sided with the US government last month, prompting Coin Center and its co-plaintiffs to file an appeal in the Eleventh Circuit last week.



Coin Center cited similar concerns over the use of the International Emergency Economic Powers Act and the government’s treatment of Tornado Cash’s as a foreign person or national. 



“Congress gave [the] Treasury the power to prohibit transactions involving certain “property” in which a foreign “national” or sanctioned ‘person’ has an interest,” Paul Grewal, chief legal officer at Coinbase, <a href="https://x.com/iampaulgrewal/status/1724197717298090110?s=20">wrote</a> on X Tuesday. Treasury’s action here stretches that authority and those words beyond any recognition.



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Tornado Cash plaintiffs seek appeals after federal court losses

Shalini Nagarajan

Coin Center is contesting the latest indictments against Tornado Cash.



Peter Van Valkenburgh, research director at the non-profit blockchain advocacy group, stated that the indictment&#8217;s limited facts don&#8217;t clearly indicate any legal violations of the relevant law.



The US Justice Department charged the co-founders of Tornado Cash with money laundering and sanctions violations on Wednesday. 



Additionally, co-founder Roman Semenov was placed on the Office of Foreign Assets Control&#8217;s (OFAC) list of specially designated nationals. Roman Storm, Semenov&#8217;s business associate, was also implicated. Both are accused of laundering over $1 billion in illicit funds via their crypto mixing service.



Valkenburgh argued in a Wednesday <a href="https://www.coincenter.org/new-tornado-cash-indictments-seem-to-run-counter-to-fincen-guidance/">blog</a> that the allegations in the indictment seem to contradict guidelines set by the US Financial Crimes Enforcement Network (FinCEN).



Read more: <a href="https://blockworks.co/news/roman-semenov-tornado-cash-ofac-list">DOJ arrests Tornado Cash co-founder Roman Storm, OFAC sanctions Roman Semenov</a>



He stated that Tornado Cash merely supplies the software for money transmission, rather than transmitting money itself.



He further pointed out that the indictment lacks factual evidence to demonstrate that the accused were involved in activities that would legally be considered money transmission.



Valkenburgh cited FinCEN&#8217;s interpretation of the relevant rule under the US Bank Secrecy Act, which states that a provider of anonymizing software is not considered a &#8220;money transmitter.&#8221;



“The indictment provides various factual allegations describing the activities the defendants performed, but all of those facts point to the defendants fitting squarely within FinCEN’s guidance on anonymizing software providers rather than them being money transmitters,” the research director wrote.



He also stated that while the government accuses the defendants of promoting Tornado Cash, earning profits from a governance token and creating various features of the tool, none of these actions constitute the receipt and transfer of money.



In 2022, OFAC imposed sanctions on Tornado Cash, alleging that the platform enabled hackers to launder $7 billion in cryptocurrency. They specifically targeted 45 Ethereum wallet addresses.



In response, Coin Center <a href="https://blockworks.co/news/coin-center-sues-over-treasurys-tornado-cash-sanctions">filed a lawsuit</a> against the US Treasury, claiming that the sanctions imposed on Tornado Cash unlawfully penalize Americans seeking to safeguard their privacy when utilizing their own digital assets.



The US federal court <a href="https://blockworks.co/news/coinbase-motion-tornado-cash-ban-unconstitutional">recently upheld sanctions</a> against the crypto mixing service, dismissing a separate Coinbase-backed lawsuit. The ruling has wider implications, impacting individuals who seek to use privacy-focused protocols for lawful purposes.



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Coin Center raises legal questions over Tornado Cash co-founders’ indictment

<div id="highlights-block_6347c4885d2fa" class="highlights">
 <ul>
 <li>Users that are “dusted” still face criminal liability and reporting obligations, suit alleges</li>
 <li>Outcome of lawsuit will be precedent-setting in whether the Treasury can continue sanctioning code</li>
 </ul>
 
</div>



Non-profit blockchain advocacy group Coin Center has filed a lawsuit against the US Treasury over its Tornado Cash sanctions, saying the move effectively criminalizes American citizens wanting to protect their privacy while using their own cryptoassets.



Other parties in Coin Center’s Wednesday <a href="https://www.coincenter.org/app/uploads/2022/10/1-Complaint-Coin-Center-10-12-22.pdf" target="_blank" rel="noreferrer noopener">complaint</a> are user Patrick O’Sullivan, New York-based investor David Hoffman and a Ukrainian supporter anonymously using the name “John Doe.”



Hoffman stated that after the Treasury’s sanctions, an unknown individual sent cryptoassets to his public address through Tornado Cash, consequently embroiling him in the situation.



“Ethereum users like Mr. Hoffman have no ability to reject incoming transfers. So the criminalization of Tornado Cash empowered someone else to implicate Mr. Hoffman and force reporting obligations on him by causing him to receive an asset from a sanctioned entity,” the filing said.&nbsp;



“And it has licensed anyone else who wishes to harass or inconvenience Mr. Hoffman to continue to send crypto assets through Tornado Cash to Mr. Hoffman’s publicly known addresses, each time triggering potential liability and reporting obligations.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I&#39;m suing the Department of Tresury! I got dusted from <a href="https://twitter.com/TornadoCash?ref_src=twsrc%5Etfw">@TornadoCash</a>, and now every year of my life I am FORCED file a report reaffirming that I&#39;m not a criminal. I don&#39;t intend to waste my time like that. David Hoffman vs Janet Yellen Let&#39;s dance <a href="https://t.co/GVCMuzvpEH">pic.twitter.com/GVCMuzvpEH</a>&mdash; DavidHoffman.bedrock 🦇🔊🏴 (@TrustlessState) <a href="https://twitter.com/TrustlessState/status/1580253035804372993?ref_src=twsrc%5Etfw">October 12, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



So far, there is no known example of the Treasury pursuing such a case.



Coin Center also states that the Treasury exceeded its regulatory authority because Tornado Cash is not a “person,” rather, it is a “privacy tool beyond the control of anyone.”



Coin Center’s lawsuit comes after its director of research <a href="https://cms.blockworks.co/coin-center-condemns-tornado-cash-sanctions/" target="_blank" rel="noreferrer noopener">said</a> the OFAC’s authority is granted by Congress in the International Emergency Economic Powers Act (IEEPA). The act empowers OFAC to sanction “property in which some foreign country or national has an interest.” Tornado Cash, a software tool, doesn’t come under that remit, Coin Center argues.



Debate around how OFAC can place sanctions against a code has been a key discussion ever since. Crypto exchange Coinbase funded a <a href="https://www.reuters.com/markets/currencies/coinbase-backs-lawsuit-against-us-treasury-over-tornado-cash-sanctions-2022-09-08/" target="_blank" rel="noreferrer noopener">similar lawsuit</a> against the Treasury, claiming that its jurisdiction does not extend to software code and smart contracts. In that suit, six Tornado Cash users claimed the Treasury overstepped its authority in sanctioning the mixer.



<h3 class="wp-block-heading">Sanctions mark evidence of mounting geopolitical pressure</h3>



The US Treasury’s Office of Foreign Assets Control <a href="https://cms.blockworks.co/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash/" target="_blank" rel="noreferrer noopener">added Tornado Cash</a> and 45 related Ethereum wallet addresses to its list of sanctioned entities in August, making it illegal for any US person to engage with the service in any manner.



Those sanctions led to <a href="https://cryptoslate.com/defi-protocols-aave-uniswap-balancer-ban-users-following-ofac-sanctions-on-tornado-cash/" target="_blank" rel="noreferrer noopener">crypto platforms</a> banning accounts associated with the crypto mixing service. Moreover, it created the risk of user addresses being banned and put centrally managed funds in jeopardy.



Crypto mixers provide transaction anonymity by commingling funds, thereby obfuscating the source from which they came. Such services have come under increased scrutiny after <a href="https://cms.blockworks.co/treasury-official-insists-crypto-mixers-can-obstruct-russian-sanctions/" target="_blank" rel="noreferrer noopener">concerns about sanctioned Russian entities</a> using crypto to make it hard to trace the source and flow of funds.&nbsp;



The Treasury also alleges that North Korea-sponsored hacking collective Lazarus Group stole over $620 million in cryptocurrency from the <a href="https://cms.blockworks.co/axie-infinity-developers-made-some-trade-offs-that-enabled-625m-ronin-breach/" target="_blank" rel="noreferrer noopener">Ronin Bridge protocol</a>.



Experts say long-term implications of the sanctions will take time to play out.



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Coin Center Sues Over Treasury’s Tornado Cash Sanctions

<div id="highlights-block_6307baeefea3f" class="highlights">
 <ul>
 <li>Coin Center’s Peter Van Valkenburg, said OFAC’s decision to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority</li>
 <li>Code is not the same type of “property” Congress allows OFAC to sanction, Coin Center argued, and will to take the battle to court, if needed</li>
 </ul>
 
</div>



In a new report, non-profit blockchain advocacy group Coin Center argues that the recently-sanctioned Tornado Cash smart contracts are not entities the Office of Foreign Asset Control can blacklist.&nbsp;



Peter van Valkenburg, Coin Center’s director of research, claims in Coin Center’s latest <a href="https://coincenter.substack.com/p/how-does-tornado-cash-actually-work" target="_blank" rel="noreferrer noopener">report</a> that OFAC’s move to sanction Tornado Cash and 45 related Ethereum addresses exceeds its authority, as granted by Congress in the <a href="https://uscode.house.gov/view.xhtml?path=/prelim@title50/chapter35&amp;edition=prelim" target="_blank" rel="noreferrer noopener">International Emergency Economic Powers Act</a> (IEEPA). 



“IEEPA empowers OFAC to sanction ‘property in which some foreign country or national has an interest,’” Van Valkenburg wrote in the report published Thursday. “Does the Tornado Cash listing fit within these powers, or is it statutory overreach?



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We believe it is clearly overreach,” van Valkenburg wrote.</blockquote>



Van Valkenburg and Coin Center argue that Tornado Cash is a software tool used by far more than just foreign countries and nationals. It is decentralized code, with scant few contracts OFAC singles out for sanction that actually can be updated by any human, and these are not used to control, mix or move user funds, Van Valkenburg added.&nbsp;



“None of the core contracts that provide privacy tools to users can be upgraded, changed, or altered,” Van Valkenburg said. “The privacy that users get from these contracts is guaranteed with math and software that is as immutable as the Ethereum blockchain itself.” 



The IEEPA allows OFAC to block “transactions” involving property in which a foreign country or national has interest, Van Valkenburg said, but this terminology does not apply to Tornado Cash activities.&nbsp;



“The individual choice to move one’s tokens from a personal address to a Tornado Cash address is no more a ‘transaction’ with another person than moving one’s valuables from a drawer in one’s home to a safe in one’s home,” Van Valkenburg argues. “At no point does any third party have any control or power during the movement.”&nbsp;



The question of if or how OFAC can place sanctions against a code has been <a href="https://cms.blockworks.co/decentralized-or-not-officials-say-tornado-cash-responsible-for-illicit-activity/" target="_blank" rel="noreferrer noopener">central</a> to the discussion around Tornado Cash in recent weeks.&nbsp;



The Treasury Department argues that there are people who can alter Tornado Cash’s code, and it is their responsibility to ensure that illicit activity does not occur.&nbsp;



“Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks,” Brian Nelson, under secretary of the Treasury for terrorism and financial intelligence, said on Aug. 8 when the sanctions were <a href="https://home.treasury.gov/news/press-releases/jy0916" target="_blank" rel="noreferrer noopener">announced</a>. “Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.”



Since its launch in Aug. 2019, Tornado Cash has received over $7.6 billion worth of ether, “a sizable portion of which have come from illicit or high-risk sources,” a recent Chainalysis <a href="https://blog.chainalysis.com/reports/tornado-cash-ofac-designation-sanctions/">report</a> noted. Of this figure, about 18% of funds came from sanctioned entities, but, the report notes, almost all the funds were received before the entities were added to the sanctions list. 



Less than 11% of funds received by the recently-sanctioned crypto mixing service Tornado Cash were stolen from other cryptocurrency exchanges and protocols, according to Chainalysis.



Coin Center, which has been a vocal opponent of OFAC’s decision to sanction Tornado Cash since the decision was announced earlier this month, has released a series of reports detailing how the mixing service works and what falls within OFAC’s powers.



The advocacy group said on Aug. 15 that it would be exploring taking OFAC to court over the Tornado Cash matter. 



The report comes shortly after Dutch financial crimes agency FIOD <a href="https://cms.blockworks.co/netherlands-arrests-suspected-tornado-cash-dev-days-after-us-sanctions/" target="_blank" rel="noreferrer noopener">arrested</a> a 29-year-old Tornado Cash developer in Amsterdam following OFAC’s sanctions announcement.



A Dutch judge ruled Wednesday that Alexey Pertsev may be held in jail without bail for up to 90 days while awaiting a public hearing.



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alexey pertsev

Coin Center Condemns Tornado Cash Sanctions

<div id="highlights-block_6258a3895ff50" class="highlights">
 <ul>
 <li>The rule seeks to change the definition of “exchange” to include entities that connect buyers and sellers</li>
 <li>The rule violates the First Amendment, according to Supreme Court precedent, Coin Center said</li>
 </ul>
 
</div>



A new rule proposed by the SEC to expand its definition of “exchange” will unfairly subject developers and publishers to registration requirements and violates the US Constitution, nonprofit research group Coin Center said Thursday.&nbsp;



The SEC <a href="https://www.federalregister.gov/documents/2022/03/18/2022-01975/amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems-atss-that-trade-us" target="_blank" rel="noreferrer noopener">revealed</a> a proposed rule in March that would classify as exchanges entities that bring “buyers and sellers” together and &#8220;make available&#8221; communications protocols. The regulatory body has previously defined exchanges as entities that bring together “orders&#8221; and &#8220;use methods&#8221; to operate trades. 



“This rulemaking aims in part to expand the definition of &#8216;exchange&#8217; in order to encompass additional financial services organizations,” Coin Center’s <a href="https://www.coincenter.org/comments-to-the-securities-exchange-commission-on-amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems/" target="_blank" rel="noreferrer noopener">comment letter</a> read.



“The way it does so, however, would create an inappropriately broad standard for registration that would impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologists.”



By expanding the definition of “exchange,” more groups and individuals would be required to register as such, Coin Center pointed out. While the SEC makes no mention of cryptocurrencies or digital asset technology in the proposal, the industry would be impacted should the rule pass, Coin Center said. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“This rule change would undoubtedly impact countless developers, publishers, and republishers who share protocols (rules in computer language) online that allow persons to trade ‘tokens’ or other valuable digital assets,” the comment letter said.&nbsp;</blockquote>



In addition to the harsher registration requirements, Coin Center argues that the proposed rule violates the First Amendment by infringing on freedom of speech.



The advocacy group cites a 1985 court case, Lowe v. SEC, where the SEC attempted to ban people from publishing newsletters with stock tips. The court ruled the ban unconstitutional.&nbsp;



“We urge the Commission to follow the counsel of former Commissioner Karmel as well as current Commissioner Peirce, and to narrow the scope of the definition and avoid chilling the speech rights of Americans,” the letter said.



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Coin Center

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