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April 6, 2023 Coin Telegraph

Alexey Pertsev

The motion is part of a broader effort to restore internet privacy rights for U.S. citizens.

The United States Treasury faces a renewed legal challenge that aims to overturn the decision to sanction the crypto mixer Tornado Cash from six individuals backed by cryptocurrency exchange Coinbase.

A motion for a partial summary judgment was filed on April 5 in a Texas District Court, the Coinbase-backed plaintiffs moved for the U.S. Office of Foreign Asset Control (OFAC) to settle for the first two counts from its original complaint filed in September 2022.

If granted, it would see the Judge rule on some of the factual issues while leaving others for the trial.

The counts claimed OFAC exceeded its statutory powers under the International Emergency Economic Powers Act (IEEPA) and violated the Free Speech clause under the U.S. Constitution’s First Amendment.

A few months ago, Coinbase backed a legal challenge to sanctions imposed by the US govt against Tornado Cash. Today the plaintiffs filed a motion for summary judgment, asking the court to reopen TC for all. Their arguments are simple but powerful. 1/10 https://t.co/xSngWKxM3x
— paulgrewal.eth (@iampaulgrewal) April 5, 2023

The plaintiffs firstly claimed OFAC breached a section of the IEEPA that allows the Treasury to take action against the property in which a foreign country or foreign national has an interest.

The motion argued that as the provision only allows the pursuit of property-related action against a foreign “national” or “person,” it doesn’t apply to open-source software.

To strengthen its claim, the plaintiffs argued the 20 or so smart contracts that provide the functionality to Tornado Cash should not be considered property under IEEPA because they cannot be owned:

“An immutable smart contract is incapable of being owned, it is not property and the Department lacks authority under IEEPA and the North Korea Act to prohibit transactions with those smart contracts.”

“No one has the right to alter them. No one has the right to delete them,” they added.

The second main argument put forth is that by banning the open-source code, OFAC is violating the Free Speech Clause of the First Amendment under the U.S. Constitution.

The plaintiffs noted OFAC has authority to take action against “crypto thieves” like North Korea’s Lazarus Group, but a “total prohibition is thus grossly disproportionate” as money laundering only accounted for 0.05% of crypto transactions in 2021.

“To ban all uses of Tornado Cash is akin to banning the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon,” they added.

The motivation behind the motion is part of a broader effort to restore internet privacy rights for U.S. citizens, the plaintiffs explained. It is the most recent filing since the individuals first sued the U.S. Department of Treasury in September.

The six plaintiffs behind the filing are Joseph Van Loon, Tyler Almeida. Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. The filing details most of the group had previously interacted with Tornado Cash.

The legal battle comes as Alexey Pertsev, the creator of Tornado Cash, faces his own in The Netherlands. He has been held since Aug. 18 on a series of money laundering charges.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Tornado Cash dev says ‘sequel’ to crypto mixer aims to be regulator-friendly

March 7, 2023 Coin Telegraph

Alexey Pertsev

Soleimani explained that the “critical flaw” with Tornado Cash is that users cannot prove that they’re not associated with a criminal enterprise stealing or laundering crypto funds.

A former Tornado Cash developer claims to be building a new crypto mixing service that aims to solve a “critical flaw” of the sanctioned crypto mixer — which he hopes will convince U.S. regulators to reconsider its position on privacy mixers.

The code of a new Ethereum-based mixer, “Privacy Pools,” was launched on GitHub on Mar. 5 by its creator, Ameen Soleimani.

In a 22-part Twitter thread, Soleimani explained that the “critical flaw” with Tornado Cash is that users cannot prove that they’re not associated with North Korea’s Lazarus Group or any criminal enterprise for that matter.

1/ We fixed @tornadocash

v0 of https://t.co/Nt4b2Tgx1D is live on @optimismFND

test out the demo, but please note:
- this is experimental code
- it has not been audited
- the trusted setup is untrusted

read the full story anon https://t.co/9nAU3RrgpN
— ameen.eth (@ameensol) March 4, 2023

With Privacy Pools, however, Soleimani explained that depositors and withdrawers could opt out of an anonymity set that contains an address associated with stolen or laundered funds.

This feature of Privacy Pools is executed with zero-knowledge (ZK) proofs, meaning that the privacy of the user is preserved:

“Now, users have the option to help regulators isolate illicit funds, without revealing their entire transaction history [...] With privacy pools, just because someone deposits into the same smart contract as you, it doesn't mean they can also force you into sharing an anonymity set with them. It's your choice.”

Soleimani provided a demonstration of how Privacy Pools is used:

13/ Our demo is live - https://t.co/Nt4b2Tgx1D

Now, users have the option to help regulators isolate illicit funds, without revealing their entire transaction history.

Let's watch a brief video of it in action: pic.twitter.com/An9lWx6jfr
— ameen.eth (@ameensol) March 4, 2023

The developer hopes the solution will empower “the community to defend against hackers abusing the anonymity sets of honest users without requiring blanket regulation or sacrificing on crypto ideals.”

While Privacy Pools is already live on Optimism, Soleimani noted that the first version of the privacy protocol is still in its “experimental” stage because the code isn’t complete and has not been audited, but he is “pretty close to having this ready.”

To see the protocol progress further, Soleimani wants on-chain forensics platforms like Chainlaysis and TRM Labs to conduct tracebacks on deposits so that users of the privacy tool don’t have to manually create their own subset exclusion lists.

In making the case for on-chain privacy protocols, Soleimani cited what he described as an “excellent” report by the Federal Reserve Bank of St. Louis in Missouri which examined the trade-offs between on-chain privacy and regulation:

“Their report proposes to achieve effective regulation by having Tornado Cash users provide receipts to an intermediary, thus revealing their entire transaction history to the intermediary, but still being able to have privacy with respect to other public blockchain users.”

The developer hopes this can help “start a conversation” with U.S. regulators on how on-chain privacy can be preserved whilst restricting criminal activity through the use of ZK proofs.

Soleimani’s attempt to create a crypto-friendly on-chain privacy solution comes after the U.S. Office of Foreign Asset Control (OFAC) sanctioned ETH and USDC addresses linked to Tornado Cash on Aug. 8 in response to several alleged thefts by North Korea’s Lazarus Group, who were claimed to have routinely used the privacy mixer to preserve its anonymity.

*Photograph of a #FreeAlex protest. Source: Ameen.eth Twitter*

Shortly after the sanction on Aug. 10, Alexey Pertsev, the creator of Tornado Cash was arrested by authorities in the Netherlands and is currently facing a series of money laundering charges. He remains behind bars and his next hearing will take place in late April.

FTX poked the bear and the bear is pissed — O’Leary on the crypto crackdown

February 21, 2023 Coin Telegraph

Alexey Pertsev

Kevin O'Leary believes U.S. Senators are “fatigued” and “pissed” at the cryptocurrency industry for having to deal with one blowup after another.

Shark Tank investor and venture capitalist Kevin O’Leary has urged crypto exchanges to “get on board with regulation” if they want to “stay out of the way” of Gary Gensler and the United States Securities Exchange Commission (SEC).

In a Feb. 20 interview with TraderTV Live, O’Leary said that U.S. lawmakers are “fatigued” over crypto collapses and that they’re only going to get more ruthless if companies continue to not comply:

“You got to get on board with regulation, you got to stay out of the way of Gensler at the SEC and other regulators. Those hombres [men] in Washington are not happy. FTX poked the bear, the bear is awake, and it is pissed.”

“These senators are really fatigued, they’re really tired of gathering every six months when the next crypto company blows up and goes to zero,” he said, adding “because they’re totally unregulated and they keep issuing tokens that are worthless.”

Venture funding for new #crypto projects is virtually dead and aftermarket trading for existing projects is at massive discounts. Reason? The #regulator is now regulating by enforcement, penalties & massive fines. The venture community has moved on to the next “big” thing, #AI pic.twitter.com/ChpjYIY9Dl
— Kevin O'Leary aka Mr. Wonderful (@kevinolearytv) February 20, 2023

O’Leary said the SEC whacking Kraken for $30 million and ordering them to immediately cease its staking services should put the industry on alert and to comply by all means.

In light of the recent regulatory crackdowns, the Shark Tank investor predicted that regulated trading platforms will be better investments than their unregulated counterparts over the next few years:

”I think the value of regulated exchanges is going to go up over the next few years, while the unregulated ones get put out of business or go to zero by the regulators.”

O’Leary recently confessed to losing basically 100% of the $15 million that FTX paid him to be its official spokesperson.

Despite admitting FTX to be a “bad” investment, Mr. Wonderful has continued to defend former FTX CEO Sam Bankman-Fried, claiming that the controversial figure should be treated as innocent until proven guilty and added that he wouldn’t rule out investing in the failed entrepreneur again:

I am not scared of investing in entrepreneurs that have had catastrophic failures. Failure is often the best teacher.
— Kevin O'Leary aka Mr. Wonderful (@kevinolearytv) February 7, 2023

Shark Tank investor has previously expressed dislike towards some of the more decentralized, unregulated players in the industry too.

On Aug. 13, O’Leary said Dutch authorities were in the right to arrest Alexey Pertsev — the creator of Ethereum-based crypto mixer Tornado Cash — because such applications and the “crypto cowboys” that run them “mess with the primal forces of regulation.”

Toranado Cash Dev Alexey Pertsev May Have Ties to Russian FSB

August 26, 2022 The Crypto Briefing

Alexey Pertsev

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