Last month, the Treasury lifted sanctions on Tornado Cash. In response, many rekindled their calls for the Trump administration to drop the charges against Keonne Rodriguez and William Lonergan Hill, the developers of Samourai Wallet who are currently being prosecuted in the Southern District of New York.

What many appear to have missed is that the Treasury’s sanctions reversal for Tornado Cash also revealed the Treasury’s stance on privacy services. And it isn’t looking good.

Tornado Cash’s removal from OFAC’s SDN list followed a lawsuit by Tornado Cash users in a Texas District Court case that has become known as Van Loon v. US Department of the Treasury, in which it was argued that the sanctioning of the software was unlawful and violated the right to free speech.

The lawsuit went to appeal in the Fifth Circuit, where three judges ruled that sanctioning a software like Tornado Cash was indeed unlawful, as OFAC’s SDN list was reserved for businesses, foreign nationals, and property – of which Tornado Cash is neither.

The Fifth Circuit, in turn, directed the Texas District Court to grant the plaintiff’s motion for partial summary judgement, which would constitute a binding court order that software like Tornado Cash cannot be sanctioned by the US Government under current sanction laws.

Now the Treasury is fighting back, in attempts to avert the judgement that would strip the agency of its powers to sanction immutable privacy software, by arguing that a judgement is not needed because Tornado Cash has been removed from the OFAC list. But without the judgement, the agency could continue to sanction software that works like Tornado Cash, and even re-sanction Tornado Cash itself.

The sanctions reversal on Tornado Cash has little to do with the prosecution of Samourai Wallet developers, as neither are charged with sanctions evasion.

But the criminal prosecution of Tornado Cash developer Roman Storm is extremely important to their case, as it may set precedent for the prosecution of Rodriguez and Hill, who have been charged with conspiracy to operate an unlicensed money transmitter and conspiracy to commit money laundering.

Both Tornado Cash and Samourai Wallet are purely non-custodial software projects, which have long been understood to be exempt from falling under anti-money laundering frameworks usually applied to banks. If Storm is found guilty in July, the Government would have a much easier time to successfully prosecute the two Bitcoin developers as well. 

While many were hopeful that the new administration would put an end to the former administration’s witch hunt on cryptocurrency developers, it seems that Trump’s Treasury is just as unfavorable to the development of privacy code. 

As CoinCenter pointed out at the end of last year, a pro-crypto administration does not necessarily equal a pro-privacy and pro-financial freedom administration. It seems that we are now witnessing what this means: while lawsuits are being dropped against “crypto casinos” like Coinbase and Uniswap, privacy software developers like Rodriguez and Hill continue to face the threat of decades in jail. 

The Treasury appears to reason these prosecutions with their hardline stance against terrorist financing and cyber crime. As the agency wrote in the announcement of Tornado Cash’s sanctions reversal: 

“Treasury remains committed to using our authorities to expose and disrupt the ability of malicious cyber actors to profit from their criminal activities through the exploitation of digital assets and the digital assets ecosystem.”

In what appears to be a first, the Treasury also issued a warning for users of privacy services, stating that “U.S. persons should exercise caution before engaging in transactions that present such risks.”

In an email addressing the reversal of sanctions against Tornado Cash, blockchain surveillance firm Chainalysis appears to echo the Treasury’s sentiment, writing that “organizations with exposure to [mixer] addresses should seek legal counsel on their responses and obligations to OFAC.”

The messaging seems clear: while it is not officially illegal to use or deal with mixing services, the Treasury appears to attempt to keep all options open to pursue charges against persons involved with privacy services in the future.

As I have argued in several Bitcoin Magazine print articles, this stance should not be a surprise, and is rather an immediate consequence of integrating digital assets into US regulatory frameworks. The more important Bitcoin becomes for the Government, the more important it will be to root out any conduct deemed illicit or criminal.

Treasury Secretary Scott Bessent has now argued as much in Tornado Cash’s sanctions reversal, stating that “securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion.”

While North Korea allegedly relies on cryptocurrency financing for its operations, the overall share of illicit funds within the cryptocurrency space is minimal, placed at a mere 0.14% of all on-chain transactions by Chainalysis itself.

At the same time, the reasons for people to use privacy services are numerous. As every transaction is visible on-chain, privacy services help people keep their transaction histories and net worth private, which in turn protects their physical security.

As Jameson Lopp regularly highlights in his physical Bitcoin attacks repository, having information about your Bitcoin public may result in violent home invasions, kidnappings, and in some cases, murder. 

The Government’s continued crackdown on privacy services does not seem proportionate to eliminating 0.14% illicit actors, but it seems that the Trump administration is in no hurry to do the right thing to protect Americans and #FreeSamourai.

This is a guest post by L0la L33tz. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.