OFAC's Decision To Add Tornado Cash To The Specially Designated Nationals List Compels Speech In Violation Of The First Amendment
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August 14th, 2022

I. Introduction

This article sets forth a First Amendment argument challenging the decision made by the United States Department of the Treasury, Office of Foreign Asset Control (“OFAC”) to sanction virtual currency mixer Tornado Cash by adding it to the Specially Designated Nationals List (“Sanctions List”). United States citizens are prohibited from transacting with individuals and entities on the Sanctions List. OFAC targeted Tornado Cash because it enables users to transact on the blockchain with some level of anonymity. OFAC alleges that Tornado Cash has been used by criminals for illicit financing.

Restricting access to privacy-enabling blockchain tools like Tornado Cash impermissibly compels speech and weaponizes censorship under the First Amendment. For both reasons, the decision to sanction Tornado Cash, and the policy against privacy-enabling blockchain technologies are subject to strict scrutiny under the First Amendment.

This article does not address the following issues because they have been discussed widely: (1) Whether adding a smart contract to the Sanctions List is procedurally proper because a smart contract is not an individual or entity with agency; and (2) Whether open source code constitutes protected speech under the First Amendment.

II. Content Based Restrictions On Speech Are Presumptively Unconstitutional Under The First Amendment.

“[T]he scope of protection for speech generally depends on whether the restriction is imposed because of the content of the speech.” Universal City Studios, Inc. v. Corley, 273 F.3d 429, 450 (2d Cir. 2001). Content-based restrictions are evaluated under strict scrutiny. Laws evaluated under strict scrutiny are presumptively unconstitutional, and are upheld “only if they serve compelling state interests and do so by the least restrictive means available. ” Id.

“Since all speech inherently involves choices of what to say and what to leave unsaid, one important manifestation of the principle of free speech is that one who chooses to speak may also decide ‘what not to say[.]” Hurley v. Irish-American Gay, Lesbian Bisexual Group, 515 U.S. 557, 573 (1995) (emphasis added; quotations omitted); see also Rubin v. Coors Brewing Co., 514 U.S. 476, 492 (1995) (“The First Amendment generally protects the right not to speak as well as the right to speak. ”); Stuart v. Camnitz, 774 F.3d 238, 245 (4th Cir. 2014) (“The First Amendment not only protects against prohibitions of speech, but also against regulations that compel speech. ”). Thus, a law that compels speech is necessarily content-based.

III. Sanctioning Tornado Cash And Similar Privacy-Enabling Blockchain Technologies Unlawfully Compels Speech.

“[W]e must recognize that the essential purpose of encryption code is to prevent unauthorized access. Owners of all property rights are entitled to prohibit access to their property by unauthorized persons.” Universal City Studios, Inc. v. Corley, 273 F.3d 429, 452 (2d Cir. 2001) (emphasis added). Privacy-enabling blockchain technologies are a necessary tool to foster free expression on-chain, and allow owners of digital assets to control access to their financial records.

Privacy-enabling blockchain technologies allow individuals to manage their blockchain-based finances without publicizing the entire record of their financial activity. Tools like Tornado Cash provide the only means by which blockchain users can limit access to their entire on-chain financial information if their address is publicized. OFAC’s restriction of privacy-enabling technology compels speech because it effectively requires all American blockchain users to disclose their entire on-chain financial history in order to use blockchain technologies.

Privacy and encryption tools like Tornado Cash provide the sole means for individuals to create havens of privacy on the blockchain. The ability to maintain financial privacy fosters free expression, and there are countless legitimate reasons why law-abiding Americans would seek financial privacy:

  • A potential employee may not want a potential employer to know their entire financial history, including past salaries. See, e.g., Cal. Lab. Code § 432.3 (“An employer shall not rely on the salary history information of an applicant for employment as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.”).
  • Individuals traditionally maintain a level of privacy in their financial affairs. Lepelletier v. Federal Deposit Ins. Corp., 164 F.3d 37, 47 (D.C. Cir. 1999) (“Indeed, this court has often held that individuals have a privacy interest in the nondisclosure of their names and addresses in connection with financial information.”).
  • Political donations to an unpopular (or even popular) campaign or movement. Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 356 (2010) (“When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful.”).

Accordingly, adding Tornado Cash to the Sanctions List—and more broadly, prohibiting Americans from accessing blockchain privacy tools—compels the disclosure of information traditionally reserved to individual discretion and autonomy. The addition of Tornado Cash to the Sanctions List, and OFAC’s policy against privacy-enabling technologies are therefore subject to strict scrutiny, and presumptively unconstitutional.

IV. Sanctioning Privacy Enabling Technologies Violates The First Amendment Because It Weaponizes Censorship.

A law that weaponizes censorship violates the First Amendment. In Reno v. ACLU, the Supreme Court applied the First Amendment to two provisions of the Communications Decency Act (“CDA”), which were enacted “to protect minors from harmful material on the Internet” by limiting the dissemination of “obscene of indecent” media to minors. Reno v. American Civil Liberties Union, 521 U.S. 844 (1997). The Court determined that the government’s proposed interpretation of the CDA would “confer broad powers of censorship, in the form of a ‘heckler’s veto,’ upon any opponent[.]” Id. at 880. “[A]ny opponent of indecent speech [] might simply log on and inform the would-be discoursers that his 17-year-old child a ‘specific person . . . under 18 years of age’ — would be present.” Id. Accordingly, the Court held that the challenged provisions of the CDA violated the First Amendment because permitting such a heckler’s veto would unconstitutionally weaponize censorship.

The situation here is even more egregious. Adding Tornado Cash to the Sanctions List creates a far more powerful censorship tool than the heckler’s veto considered in Reno. Under OFAC’’s decision, any blockchain user can effectively censor any other by sending the recipient digital assets from Tornado Cash. That user’s wallet has then transacted with a sanctioned entity, and the user may lawfully be imprisoned under the applicable strict liability regime. This argument is not mere conjecture. In the days following OFAC’s decision, numerous wallets received small amounts of money sent from Tornado Cash—placing them at risk of sanctions.

OFAC turned Tornado Cash into a censorship weapon backed by the United States government’s leviathan financial sanctions regime. If the First Amendment cannot tolerate a law enabling a “heckler’s veto” in online chat rooms, it must not tolerate a law allowing hecklers to censor speech via the threat of criminal sanctions typically reserved for terrorist financiers. See Reno, 521 U.S. at 872 (“The severity of criminal sanctions may well cause speakers to remain silent rather than communicate even arguably unlawful words, ideas, and images.”).

V. Conclusion

For the foregoing reasons, OFAC’s decision to add Tornado Cash to the Sanctions List violates the First Amendment. An injunction should issue mandating that OFAC remove the Tornado Cash smart contract and front-end from the Sanctions List, and prohibiting OFAC from banning access to privacy enabling blockchain technologies solely for their privacy-enabling features.

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