Coinbase helps sue US Treasury over Tornado Cash sanctions that ensnare Americans engaging in ‘lawful activity’
- Coinbase Global helped organise the lawsuit filed in Waco, Texas, that argues the Treasury overstepped its authority and is violating constitutional rights
- On August 8, the Treasury’s Office of Foreign Assets Control barred Americans from using Tornado Cash, which makes it harder to trace cryptocurrencies
The lawsuit, filed Thursday by six individuals including two Coinbase employees, claims Treasury overstepped its authority to block financial transactions benefiting foreign terrorists. It alleges that the department, perhaps unintentionally, ensnared law-abiding Americans conducting legitimate digital commerce through a cryptocurrency service that offers enhanced privacy and security.
“None of the plaintiffs is a terrorist or a criminal,” lawyers for the Tornado Cash customers said in the complaint, filed in federal court in Waco, Texas. “None supports terrorism or illegal activity. None launders money. Each is an American who simply wants to engage in entirely lawful activity in private.”
On August 8, the Treasury’s Office of Foreign Assets Control (OFAC) accused Tornado, a service that makes it harder to trace coins, of laundering more than US$7 billion of cryptocurrencies since its creation in 2019. The agency sanctioned crypto wallets associated with Tornado Cash, as well as related code known as smart contracts.
Risk to industry
OFAC’s move is likely unprecedented and could hobble the crypto industry, which is built largely on smart contracts, said Paul Grewal, Coinbase’s chief legal officer and a former magistrate judge in the Northern District of California.
“Neutral technologies and tools are not within the sanctions law as has been written by Congress,” Grewal said in an interview. “Just because armed robbers used a highway doesn’t mean the highway should be banned. We felt compelled to act.” Coinbase is complying with the sanctions, the company said.
Neither the Treasury Department nor the Justice Department responded to requests for comment on the suit.
In his tweets and retweets, Coinbase chief executive officer Brian Armstrong had indicated his opposition to the sanctions and had hinted at legal action to come. In September, he retweeted a post by Coinbase board member Katie Haun examining possible grounds on which to fight the OFAC action, such as the Fourth Amendment, which protects people against unreasonable searches and seizures. He also tweeted that his company may consider mounting a legal challenge or exiting a business if regulators continue to push for censorship.