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An Update on Tornado Cash

86 points by panarky 4y ago

phone8675309 4y ago
The Tornado Cash situation is interesting to me because being treated as a money laundering facility seems like the most foreseeable risk here. Did the people working on this really think they wouldn’t be smacked down hard for it (unjustifiably so, imo) by governments that want to keep money laundering the province of bankers in their favor, high powered corporate donors, and government agents? It’s a big club, and we aren’t in it.
- simple-thoughts 4y ago
  Tornado cash still hasn’t been shut down. You can even visit it like a normal website if you have IPFS companion installed. Some people care more about freedom than compliance.
- dist1ll 4y ago
  > Did the people working on this really think they wouldn’t be smacked down hard for it Of course they knew. That doesn't stop a hacker. Individual freedoms will always be hard-fought. And authoritarian governments will always resist them
- tadfisher 4y ago
  Wait, is crypto a currency or a security? The SEC and OFAC apparently disagree on this point.
- hakfoo 4y ago
  I never quite understood the bugabear about money laundering in the abstract. If there's fundamentally a criminal or security problem, it seems like that should be the core thing that law enforcement should be chasing. Disguising the source of funds, while arguably distasteful, shouldn't be the issue as long as appropriate taxes are paid. It's amusing that the IRS has explicit "declare your illegal income and we are not allowed to turn you over for doing so" mandates. My guess is that it provides a simpler case for prosecution. So to speak, they'd rather go after Al Capone for tax evasion. Rather than having to build a case on the "base" crime-- "prove he sold specific drugs at a specific time" or "prove he was involved in a specific deal with $sanctioned_country" -- they can move to "prove that this neighbourhood Subway franchise isn't turning over $75 million a year", which can largely be proven with a couple people sitting over Excel, rather than on-the-ground investigations and witnesses.
  - jackpeterfletch 4y ago
    In reality though, you wouldn’t ‘launder’ money that wasn’t ‘dirty’. As an activity it’s basically always indicative of a crime. (Wether you agree with the law or not) And by its very purpose, it makes the ‘base’ crime harder to prosecute and trace. I think you’ve flipped the causality. So I don’t think it’s so much that prosecutors just think it’s easier way forward, and if they put their mind to it they could prosecute the base crime, but don’t want to. As much as the laundering activity itself has made it too hard to prosecute.
    - sowbug 4y ago
      And VPNs are only for downloading child porn.
    - hakfoo 4y ago
      I could imagine businesses in stealth phases trying to intentionally obfuscate their externally visible finances to keep a low profile. "Hey, $big_client, can you pay us through a chain of sham companies so it looks like you're buying office chairs from Crazy Teddy's Furniture and Waffles, so we can make a big splash when we announce our partnership at the launch event?" seems like something not that far out of line. Legitimate firms might want to blur their supply chains and vendor relationships. If a manufacturer of some small component discovers the end buyer is Apple, for example, it might increase the temptation for "ghost shifts" and supplying extra components into the knockoff-product and aftermarket repair ecosystems.
- SilverBirch 4y ago
  Honestly, the thing that surprises me isn't that Tornado Cash got in trouble, it's that things like Ethereum haven't. Loads of Ethereum's work is explicitly to prevent government intervention and it's not like they even try to have plausible deniability, if you ask them why their doing it they will literally tell you they don't want the US government to be able to intervene in transactions in any way - even if the interventions are perfectly morally justified. It's like... ok guys, but I don't see how you aren't all just going to end up sanctioned when you eventually cross the line. It's like running a site that allows adult content - it doesn't matter how legit the service is, it ends up being a porn site. In the same way it doesn't matter what Ethereum devs intentions are, it will end up as a neat tool for North Korea and Iran.
deleted 4y ago
[deleted]
mike_d 4y ago
I am actually shocked that the EFF seems to have no idea what is going on here. An entity (Tornado Cash) was sanctioned for participating in money laundering activity. GitHub terminated their accounts not because of the code itself that existed, but because as a US organization they cannot do business with the sanctioned entity. To provide a clearer example: A US based hotel chain would be free to rent a room to the developers for a vacation, but not for a meetup to work on Tornado Cash code.
- tourmalinetaco 4y ago
  The Github should have never been taken down. You can terminate a business relationship while maintaining a mirror of open source code. Ultimately, Microsoft, a government-backed entity, performed censorship for the government.
  - badkitty99 4y ago
    [dead]
  - adastra22 4y ago
    As they are required to do by law. Take your grievance to your federal representatives.
- jMyles 4y ago
  > An entity (Tornado Cash) An entity? Can you link me to its physical, geographic address? Or its board of directors? Maybe its charter or mission statement? Do they have a revenue model? Can you clarify what transforms a deployed solidity document into "an entity"?
  - Shank 4y ago
    The US broadly defines entity as “a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.” This is written in 31 CFR 510.305, https://www.ecfr.gov/current/title-31/subtitle-B/chapter-V/part-510/subpart-C/section-510.305 https://www.ecfr.gov/current/title-31/subtitle-B/chapter-V/p.... This is one of the interesting intersections of US law where interpretation is everything. Until you can find a judge that wants to strictly define all of these words and the term “entity” to establish precisely what an entity is, or unless the code is rewritten, an entity can practically be anything OFAC wants it to be. Based on how this was written, I almost think that if a judge ruled that sanctioning the contract didn’t count, the entire ethereum network could easily be classified as an “entity” as a group of networked computers. The possibilities of this definition are quite profound.
monero-xmr 4y ago
Just require companies that interact with funds from Tornado Cash (or any other privacy coin) to get KYC documents and funds explanation from users. Not really any different than cash deposits at a bank - you don’t know where the money came from, so have a presumption of suspicion but enable the users with a legitimate reason for privacy to prove themselves. The OFAC thing, Elizabeth Warren’s “anti crypto army” advertisement, hyperventilations about crypto being used for crime… all of this while regular banks collapsed and crypto is the financial success story of 2023. I think the government has overplayed their hand and hopefully courts intervene to limit it.
- simple-thoughts 4y ago
  Tornado has those audit tools built in - if asked, you can prove the source of funds to a third party.
pjkundert 4y ago
You are not authorized to have financial privacy. Whether or not you comply with the law, it is assumed that attempting to maintain privacy proves that your behavior is illegal. The faster you get used to the idea, the “happier” you will be.
- nostrademons 4y ago
  Tell that to all the folks who set up trusts, shell corporations, multiply-redundant financial accounts, P.O. boxes for billing addresses, or just refuse to share their salary online. In general, people with a lot more money than you have found that the more you maintain financial privacy (legally, of course), the happier your life will be. Money attracts problems, so the fewer people who know you have money, the fewer problems you have.
  - pjkundert 4y ago
    Yes, of course. It’s a big club - and you ain’t in it. Stay in your lane, work hard, pay your taxes and don’t ask questions. You’ll own nothing - and you’ll be happy.

86 points by panarky 4y ago

The Tornado Cash situation is interesting to me because being treated as a money laundering facility seems like the most foreseeable risk here. Did the people working on this really think they wouldn’t be smacked down hard for it (unjustifiably so, imo) by governments that want to keep money laundering the province of bankers in their favor, high powered corporate donors, and government agents? It’s a big club, and we aren’t in it.

simple-thoughts 4y ago
Tornado cash still hasn’t been shut down. You can even visit it like a normal website if you have IPFS companion installed. Some people care more about freedom than compliance.
dist1ll 4y ago
> Did the people working on this really think they wouldn’t be smacked down hard for it Of course they knew. That doesn't stop a hacker. Individual freedoms will always be hard-fought. And authoritarian governments will always resist them
tadfisher 4y ago
Wait, is crypto a currency or a security? The SEC and OFAC apparently disagree on this point.
hakfoo 4y ago
I never quite understood the bugabear about money laundering in the abstract. If there's fundamentally a criminal or security problem, it seems like that should be the core thing that law enforcement should be chasing. Disguising the source of funds, while arguably distasteful, shouldn't be the issue as long as appropriate taxes are paid. It's amusing that the IRS has explicit "declare your illegal income and we are not allowed to turn you over for doing so" mandates. My guess is that it provides a simpler case for prosecution. So to speak, they'd rather go after Al Capone for tax evasion. Rather than having to build a case on the "base" crime-- "prove he sold specific drugs at a specific time" or "prove he was involved in a specific deal with $sanctioned_country" -- they can move to "prove that this neighbourhood Subway franchise isn't turning over $75 million a year", which can largely be proven with a couple people sitting over Excel, rather than on-the-ground investigations and witnesses.
- jackpeterfletch 4y ago
  In reality though, you wouldn’t ‘launder’ money that wasn’t ‘dirty’. As an activity it’s basically always indicative of a crime. (Wether you agree with the law or not) And by its very purpose, it makes the ‘base’ crime harder to prosecute and trace. I think you’ve flipped the causality. So I don’t think it’s so much that prosecutors just think it’s easier way forward, and if they put their mind to it they could prosecute the base crime, but don’t want to. As much as the laundering activity itself has made it too hard to prosecute.
  - sowbug 4y ago
    And VPNs are only for downloading child porn.
  - hakfoo 4y ago
    I could imagine businesses in stealth phases trying to intentionally obfuscate their externally visible finances to keep a low profile. "Hey, $big_client, can you pay us through a chain of sham companies so it looks like you're buying office chairs from Crazy Teddy's Furniture and Waffles, so we can make a big splash when we announce our partnership at the launch event?" seems like something not that far out of line. Legitimate firms might want to blur their supply chains and vendor relationships. If a manufacturer of some small component discovers the end buyer is Apple, for example, it might increase the temptation for "ghost shifts" and supplying extra components into the knockoff-product and aftermarket repair ecosystems.
SilverBirch 4y ago
Honestly, the thing that surprises me isn't that Tornado Cash got in trouble, it's that things like Ethereum haven't. Loads of Ethereum's work is explicitly to prevent government intervention and it's not like they even try to have plausible deniability, if you ask them why their doing it they will literally tell you they don't want the US government to be able to intervene in transactions in any way - even if the interventions are perfectly morally justified. It's like... ok guys, but I don't see how you aren't all just going to end up sanctioned when you eventually cross the line. It's like running a site that allows adult content - it doesn't matter how legit the service is, it ends up being a porn site. In the same way it doesn't matter what Ethereum devs intentions are, it will end up as a neat tool for North Korea and Iran.

deleted 4y ago

[deleted]

mike_d 4y ago

I am actually shocked that the EFF seems to have no idea what is going on here. An entity (Tornado Cash) was sanctioned for participating in money laundering activity. GitHub terminated their accounts not because of the code itself that existed, but because as a US organization they cannot do business with the sanctioned entity. To provide a clearer example: A US based hotel chain would be free to rent a room to the developers for a vacation, but not for a meetup to work on Tornado Cash code.

tourmalinetaco 4y ago
The Github should have never been taken down. You can terminate a business relationship while maintaining a mirror of open source code. Ultimately, Microsoft, a government-backed entity, performed censorship for the government.
- badkitty99 4y ago
  [dead]
- adastra22 4y ago
  As they are required to do by law. Take your grievance to your federal representatives.
jMyles 4y ago
> An entity (Tornado Cash) An entity? Can you link me to its physical, geographic address? Or its board of directors? Maybe its charter or mission statement? Do they have a revenue model? Can you clarify what transforms a deployed solidity document into "an entity"?
- Shank 4y ago
  The US broadly defines entity as “a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.” This is written in 31 CFR 510.305, https://www.ecfr.gov/current/title-31/subtitle-B/chapter-V/part-510/subpart-C/section-510.305 https://www.ecfr.gov/current/title-31/subtitle-B/chapter-V/p.... This is one of the interesting intersections of US law where interpretation is everything. Until you can find a judge that wants to strictly define all of these words and the term “entity” to establish precisely what an entity is, or unless the code is rewritten, an entity can practically be anything OFAC wants it to be. Based on how this was written, I almost think that if a judge ruled that sanctioning the contract didn’t count, the entire ethereum network could easily be classified as an “entity” as a group of networked computers. The possibilities of this definition are quite profound.

monero-xmr 4y ago

Just require companies that interact with funds from Tornado Cash (or any other privacy coin) to get KYC documents and funds explanation from users. Not really any different than cash deposits at a bank - you don’t know where the money came from, so have a presumption of suspicion but enable the users with a legitimate reason for privacy to prove themselves. The OFAC thing, Elizabeth Warren’s “anti crypto army” advertisement, hyperventilations about crypto being used for crime… all of this while regular banks collapsed and crypto is the financial success story of 2023. I think the government has overplayed their hand and hopefully courts intervene to limit it.

simple-thoughts 4y ago
Tornado has those audit tools built in - if asked, you can prove the source of funds to a third party.

pjkundert 4y ago

You are not authorized to have financial privacy. Whether or not you comply with the law, it is assumed that attempting to maintain privacy proves that your behavior is illegal. The faster you get used to the idea, the “happier” you will be.

nostrademons 4y ago
Tell that to all the folks who set up trusts, shell corporations, multiply-redundant financial accounts, P.O. boxes for billing addresses, or just refuse to share their salary online. In general, people with a lot more money than you have found that the more you maintain financial privacy (legally, of course), the happier your life will be. Money attracts problems, so the fewer people who know you have money, the fewer problems you have.
- pjkundert 4y ago
  Yes, of course. It’s a big club - and you ain’t in it. Stay in your lane, work hard, pay your taxes and don’t ask questions. You’ll own nothing - and you’ll be happy.