Government Blocking of "Tornado Cash" Cryptocurrency-Related Service Was Legal, Didn't Violate First Amendment

From Monday's opinion by Judge T. Kent Wetherell, II (N.D. Fla.) in Coin Center v. Yellen (for a similar decision, see this August post about Van Loon v. Dep't of Treasury):

Plaintiffs argue that [the government's restriction on the use of] Tornado Cash [a mechanism for further anonymizing cryptocurrency transactions] violated the First Amendment because it chilled Plaintiffs' protected rights of association by blocking a financial privacy tool they relied on to make donations to organizations and causes and it was not narrowly tailored to achieve its aims. Defendants responds that the First Amendment was not implicated by OFAC's designation of Tornado Cash and, and even if it was, the designation satisfies the requisite level of scrutiny.

Plaintiffs do not cite any authority supporting the existence of a First Amendment right to use a particular service or type of currency to make donations for charitable or other purposes. The freedom of association cases cited by Plaintiffs are distinguishable because those cases involve government action that compelled private associations to disclose their major donors or members. See Americans for Prosperity Found. v. Bonta (2021); Gibson v. Florida Legislative Investigation Comm. (1963). Here, the designation of Tornado Cash did not compel private associations to disclose anything about their donors or members.

The Court did not overlook Plaintiffs' reliance on Meyer v. Grant (1988), for the proposition that the government violates the First Amendment when it "restricts access to the most effective, fundamental, and perhaps economical avenue of political discourse." However, that case does not help Plaintiffs here for two reasons.

First, Meyer is a free speech case that dealt with the chilling consequences that a ban on paying the circulators of initiative petitions would have on disseminating "political discourse." Here, Plaintiffs have raised a freedom of association claim, not a free speech claim.

Second, the designation of Tornado Cash does not preclude Plaintiffs (or anyone else) from spending money or donating money for political ends, nor does it preclude organizations from accepting anonymous donations. The fact that Tornado Cash may be Plaintiffs' preferred way of maintaining their financial privacy does not mean that it is the only way for them to do so. Indeed, it is noteworthy that one of the plaintiffs stated in his declaration that Tornado Cash is used "in his regular rotation of privacy tools," which implies that there are other privacy tools that are available to Plaintiffs.

Accordingly, for the reasons stated above, the Court finds that the designation of Tornado Cash did not implicate Plaintiffs' First Amendment rights. {Based on this conclusion, the Court need not consider what level of scrutiny applies to the designation of Tornado Cash or whether the designation would withstand that level of scrutiny.}

Here's more on the legal backstory:

The International Emergency Economic Powers Act (IEEPA) authorizes the President to declare national emergencies "to deal with any unusual and extraordinary [foreign] threat … to the national security, foreign policy, or economy of the United States." Pursuant to that authority, the President declared national emergencies with respect to malicious foreign cyber-enabled activities, and North Korea's pursuit of its nuclear missile program.

After a national emergency is declared, the IEEPA authorizes the President to "regulate … or prohibit … any use [of], transfer [of], … dealing in, … or transactions involving, any property in which any foreign country or a national thereof has any interest." Pursuant to that authority, the President blocked all property and interests in property of any person determined by the Secretary of the Treasury to have materially assisted, sponsored, or provided financial, material, or technological support for foreign malicious cyber-enabled activities that threaten the national security, foreign policy, or economic health or financial stability of the United States and the North Korean government.

The Secretary of the Treasury delegated the authority granted by Executive Orders 13694 and 13722 to the Director of the Office of Financial Assets Control (OFAC).

On November 8, 2022, OFAC designated "Tornado Cash" as a Specially Designated National or Blocked Person. The effect of the designation is that "unless licensed or otherwise authorized by [OFAC], (1) all real, personal, and any other property and interests in property of [Tornado Cash] … are blocked and may not be transferred, paid, exported, withdrawn or otherwise dealt in, and (2) any transaction or dealing … in property or interests in property of [Tornado Cash] is prohibited."

The designation described Tornado Cash as

an entity with an organizational structure that consists of: (1) its founders—Alexey Pertsev, Roman Semenov, and Roman Storm—and other associated developers, who together launched the Tornado Cash mixing service, developed new Tornado Cash mixing service features, created the Tornado Cash Decentralized Autonomous Organization (DAO), and actively promote the platform's popularity in an attempt to increase its user base; and (2) the Tornado Cash DAO, which is responsible for voting on and implementing those new features created by the developers.

The designation listed 91 Internet addresses that were affiliated with Tornado Cash, including the addresses for the "smart contracts" that Plaintiffs refer to as the "core software tool" of the Tornado Cash service….

Cryptocurrency is a virtual currency that can be used for payment or investment purposes…. Tornado Cash is a cryptocurrency "mixing service" that was founded by two Russians (Alexey Pertsev and Roman Semenov), Roman Storm, and other associated developers…. The Tornado Cash service uses smart contracts—which are essentially computer software created by its developers …. The smart contracts allow Ethereum users to deposit ETH [Ethereum coins] into a "pool" where it is mixed with other users' deposits and then withdrawn at a time of the user's choosing. The more users that have deposited ETH into the pool the more difficult it is to connect the withdrawal with a particular deposit, which thereby provides a degree of anonymity to the user's transaction that is not available on the public ledger….

Tornado Cash transactions can be (and 84% are) executed with the aid of third-party "relayers." The use of a relayer makes it even harder to identify the parties to the transaction, but transactions can be completed without a relayer….

The court also upheld the government's actions against various other claims by Coin Center.

The government defendants are represented by Christine L. Coogle and Christopher Robert Healy of the Justice Department.

Comments

[John F. Carr]

This part

The fact that Tornado Cash may be Plaintiffs' preferred way of maintaining their financial privacy does not mean that it is the only way for them to do so. Indeed, it is noteworthy that one of the plaintiffs stated in his declaration that Tornado Cash is used "in his regular rotation of privacy tools," which implies that there are other privacy tools that are available to Plaintiffs.

reminds me of decisions saying that banning a mode of interstate travel is acceptable because there are other ways to travel. The government would like to ban every method of financial privacy one by one. No single ban will be actionable in isolation.

[ReaderY]

The constitution gives the government power to coin money and determine what constitutes legal tender. That gives them full power to control forms of currency. Government can ban use of foreign currency for domestic transactions, and sometimes does for some purposes. Government can even ban its own coins and currency, and has done so several times. In the 19th century, the government minted trade dollars containing more silver than standard dollars for use in foreign trade, but banned their use domestically. Similarly in 1933, it banned domestic use of gold but continued to use it in foreign transactions.

Nothing prevents a similar approach to cryptocurrency. Government could flat out ban all forms of private cryptocurrency whether or not it creates its own if it wants to. Nothing makes cryptocurrency different from 19th century trade dollars and 1933 gold. The financial “message” embedded in silicon that cryptocurrency represents is not different, for First Amendment purposes, from the “message” embedded in coins when they are minted or dollar bills when they are printed.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Let's see ....

To coin Money, regulate the Value thereof, and of foreign Coin

I don't see any monopoly clause.

[ReaderY]

You’re claiming that a statute saying only government money has value, or a lesser regulation that specific forms of non-government money lack value and cannot be used as valuable money, isn’t a regulation of the value of money?

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

It says, quote, "To coin Money, regulate the Value thereof".

"to coin" is not a monopoly.

"to regulate" is constrained by "thereof" to the government's money.

Where does it provide a monopoly?

[WuzYoungOnceToo]

You’re claiming that a statute saying only government money has value

What "statute" are you claiming says, "only government money has value"?

[David Nieporent]

You’re claiming that a statute saying only government money has value, or a lesser regulation that specific forms of non-government money lack value and cannot be used as valuable money, isn’t a regulation of the value of money?

Correct. It's not. Also, a statute that says that only government money has value is roughly the equivalent of a statute saying that π = 3.

The government cannot legislate what has value; value is a property of an object determined by what people are willing to exchange for it.

Also, if only money had value, then what could it be used for? One couldn't contract with someone to exchange money for a good or service, because if the good or service has no value then there's no consideration for the agreement.

[ReaderY]

You’re saying government cannot prohibit the use of cocaine, or nuclear weapons, or stolen goods, to pay a debt? It’s powerless to prevent it because it can’t say what has value?

Government can’t prohibit the use of trade dollars to pay a debt? Gold Eagles? (between 1933 and when gold was again fully legalised.)

[WuzYoungOnceToo]

You’re saying government cannot prohibit the use of cocaine, or nuclear weapons, or stolen goods, to pay a debt? It’s powerless to prevent it because it can’t say what has value?

Maybe put the bong down for a while and let your head clear a bit.

Gold Eagles? (between 1933 and when gold was again fully legalised.)

Again, the payment of a debt (or any other transaction) gold (in any form) was NOT prohibited in 1933. You simply couldn't enforce a contract that required payment in gold.

[Drewski]

You also think the Fed is unconstitutional. Why would anyone take your arguments seriously?

[Krayt]

Cash has anonymity. The People shouldn’t be forced to give this up merely to participate in modern conveniences.

“It’s not coins, therefore the government gets to track you in the modern camera, computer, AI-powered automatic everything tracker database!”

First, Meyer is a free speech case that dealt with the chilling consequences that a ban on paying the circulators of initiative petitions would have on disseminating "political discourse." Here, Plaintiffs have raised a freedom of association claim, not a free speech claim.

Paying people to distribute your speech is indeed a First Amendment thing, and is part of the mass production and distrubution of speech, as in freedom of the press, which, IIRC, has been largely inhaled by implication into freedom of speech itself.

[WuzYoungOnceToo]

The constitution gives the government power to coin money and determine what constitutes legal tender.

Can you cite the COTUS text that gives "the government" (I'm assuming you mean the U.S. federal government) the authority to ban any medium of exchanges created, used by and between private parties?

[Noscitur a sociis]

Seems like a pretty basic exercise of the interstate and foreign commerce power, no?

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

See Article I, Section 8, clause 5. There is no monopoly on coining.

[Noscitur a sociis]

I didn’t say this statute (and the executive order issued pursuant to it) was an exercise of the coinage power. I said it was an exercise of the interstate and foreign commerce power.

[WuzYoungOnceToo]

I didn’t say this statute (and the executive order issued pursuant to it) was an exercise of the coinage power. I said it was an exercise of the interstate and foreign commerce power.

But you did so in response to a question specifically regarding a claim about the coinage power (“medium of exchange”).

[Noscitur a sociis]

No, I did so in response to this question that you asked:

Can you cite the COTUS text that gives “the government” (I’m assuming you mean the U.S. federal government) the authority to ban any medium of exchanges created, used by and between private parties?

[WuzYoungOnceToo]

And that question was asked of ReaderY regarding his...

The constitution gives the government power to coin money and determine what constitutes legal tender. That gives them full power to control forms of currency.

...claim. Context matters.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

By that logic, the entirety of the rest of the Constitution can be overruled by other clauses.

When one clause says "this is what you can do", that implicitly means "and no more". No other clause can then come in and say "yes more."

[Sarcastr0]

No, that's not how you read the Constitution. Or any legal document.

One grant of authority does not obviate all other grants of authority.

[WuzYoungOnceToo]

Seems like a pretty basic exercise of the interstate and foreign commerce power, no?

No. And...what does that have to do with an argument based on "the government power to coin money and determine what constitutes legal tender"?

[WuzYoungOnceToo]

And note that my question to ReaderY was not with regard to this specific case (which was based on a 1A challenge), but to his argument that COTUS “gives them {.gov} full power to control forms of currency”.

[Noscitur a sociis]

Oh, sorry. I thought we were talking about the case that this post was about. Carry on.

[WuzYoungOnceToo]

Oh, sorry. I thought we were talking about the case that this post was about. Carry on.

Clearly "thought" was never a part of your approach here. It's abundantly clear...and has even been explicitly explained to you multiple times...that I was asking about a specific assertion made by ReaderY (you know, the post that I responded to and explicitly quoted?), not the underlying case itself.

[Noscitur a sociis]

No.

Can you explain? The statute at issue here gives the president, in certain circumstances, the authority to

(A) investigate, regulate, or prohibit—

(i) any transactions in foreign exchange,
(ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or a national thereof,
(iii) the importing or exporting of currency or securities,
by any person, or with respect to any property, subject to the jurisdiction of the United States;

[and]
(B) investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States[.]

How is that not a regulation of foreign commerce?

[WuzYoungOnceToo]

Again, my question was not about "The statute at issue here". I'm asking ReaderY about his assertion about some broad, all-encompassing authority to regulate/ban any/all forms of "currency".

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Nice. Where is that authority in the actual Constitution?

[ReaderY]

I have to say, the fact that the original constitution regarded regulating payment of debt as a completely separate power from the interstate commerce power is strong evidence that the framers never meant interstate commerce to extend to “anything economic.”

[MatthewSlyfield]

my understanding is that retail sales where you pay at the time of receipt of goods are not considered debts within the meaning of the legal tender clause.

So no, legal tender clause + interstate commerce + foreign commerce does not give Congress power over all economic activity.

[WuzYoungOnceToo]

I'm also confused by the following:

Nothing makes cryptocurrency different from 19th century trade dollars and 1933 gold.

I presume "1933 gold" refers to either FDR's EO 6102, which was not only NOT an act of Congress (which is the branch given the authorities you previously cite) but also did not ban transactions using gold, or to the "Gold Repeal Joint Resolution" which was an act of Congress, but which also did not ban use of gold for private transactions. (It merely rendered unenforceable contracts requiring gold as a form of payment.)

So how do either (or both) of those support the idea that "the government" can ban privately created and used mediums of exchange?

[ReaderY]

You’re not denying what I said, that the federal government banned use of its own coins. So I don’t think it’s a refutation of my argument to say that yes, the government did that, but it didn’t ban any use of gold bullion entirely. That just doesn’t counter my argument.

My argument is that government can ban particular forms of money and indeed particular currencies or types of coins without banning others. You’re agreeing that in 1933, that’s exactly what it did.

[WuzYoungOnceToo]

You’re not denying what I said, that the federal government banned use of its own coins.

Yes, I did. I also asked you how that example supports your assertion that "“the government” can ban privately created and used mediums of exchange?" Not surprisingly, you're dodging the question.

[Martinned]

Wouldn't it be great if there was a right to privacy? I mean, presumably in that case this plaintiff would still lose, but at least it wouldn't involve trying to squeeze every dispute with the government into the first amendment.