Coinbase backs lawsuit against U.S. Treasury over Tornado Cash sanctions

Six Ethereum users and Tornado Cash filed a lawsuit in the Western District of Texas against the U.S. Department of the Treasury. The case concerns sanctions against the cryptocurrency mixer.

In their view, the OFAC decision on August 8, 2022 OFAC add to the blacklist the service’s website, as well as the associated 39 Ethereum addresses and 6 USDC addresses, “does not comport with the law.” The users offered three grounds for their suit:

• Tornado Cash does not meet the definition of property, a foreign state or its citizen, or a person, and cannot be added to the SDN list;
• OFAC ignored First Amendment to the U.S. Constitution;
• the ban on interacting with Tornado Cash violated due process.

Coinbase supported the suit. This was reported by the exchange’s chief legal officer, citing a statement by the company’s CEO, Brian Armstrong.

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This morning, Brian Armstrong shared why Coinbase is funding and supporting a challenge by six individuals (including two CB employees) against the Treasury Department and OFAC’s novel sanctions of open source software associated with Tornado Cash. https://t.co/8l5iKAjVZg

— paulgrewal.eth (@iampaulgrewal) September 8, 2022

“Today we announce that Coinbase is funding the legal action brought by six individuals who challenge the U.S. Treasury sanctions on Tornado Cash smart contracts and ask the court to remove them from the sanctions list,” the statement said.

Armstrong noted that the exchange takes a “hard line against illicit actions.” However, in his view, the agency has taken an “unprecedented step” by imposing restrictions on the entire technology and overstepping its powers.

“[…] while we share the Treasury’s commitment to fighting crime, we believe these actions harm innocent people and threaten the future of decentralized finance (DeFi) and, in particular, Web3,” emphasized Coinbase’s CEO.

According to him, sanctions against Tornado Cash are not the best way to solve the problem. Armstrong added that OFAC’s decision stifles innovation.

“Developers are now concerned that they face liability for things they have nothing to do with and cannot control. At a time when we should foster innovation, this fear and uncertainty will do the opposite — it will make developers think twice about exposing themselves to risk as they push the industry forward,” concluded the company’s head.

Coin Center, the industry rights group, said that OFAC overstepped its authority in the case against the mixer. Kraken CEO Jess Powell called the regulator’s actions unconstitutional and infringing on citizens’ right to privacy.

Representative Tom Emmer wrote to U.S. Treasury Secretary Janet Yellen, in which he demanded explanations regarding the Tornado Cash restrictions.

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