According to a new lawsuit filed in the United States District Court, Western District of Texas. On Thursday, six users of the Ethereum blockchain and cryptocurrency mixer Tornado Cash sued the United States Department of the Treasury, claiming that its recent designation of 44 Tornado Cash smart contract addresses to the Specially Designated Nationals (SDN) list of the Office of Foreign Assets Control (OFAC) is not “in accordance with law”.
As of August 8, US individuals and entities are prohibited from interacting with sanctioned Tornado Cash smart contract addresses, in regards to the blockchain or businesses, under threat of criminal or civil penalties for non-compliance. The plaintiffs seek to nullify the designation based on three arguments. First, they maintain that Tornado Cash does not meet the definition of property, foreign country or national thereof, or person, and therefore cannot be added to the SDN list.
Second, they allege a violation of their First Amendment rights (free speech) under the United States Constitution:
“Tornado Cash allows Plaintiffs to engage in important and socially valuable speech. However, due to the designation, Plaintiffs cannot use Tornado Cash to make donations to support important and potentially controversial political and social causes.”
Third, the plaintiffs claim that due to the Treasury designation, they were unable to access the Ether stored in the Tornado Cash pools. They maintain that this alleged lack of prior deprivation process is a violation of legal procedures.
That same day, Coinbase publicly supported the lawsuit. The firm backed the move as a “defense of privacy in the cryptocurrency space” and has pledged to fund the lawsuit. “Sanctions exceed Treasury’s authority, harm innocent people, remove privacy and security options for crypto users, and stifle innovation,” Coinbase said. He then raised individual examples of alleged benefits of Tornado Cash:
“One person used Tornado Cash to donate money to Ukraine anonymously. Afterwards, his wallet received potentially malicious airdrops. But because he anonymized his crypto before donating, he prevented attacks on his personal accounts. He has funds trapped in Tornado Cash.”
“Developers are concerned that they might be held accountable for something they had nothing to do with and can’t control,” Coinbase said in an argument that Treasury’s move will stifle innovation. The US Treasury Department claims that more than $7 billion worth of cryptocurrency has been laundered through Tornado Cash since its inception. Stablecoin issuers such as Circle have taken steps to freeze Tornado Cash smart contract addresses that are blacklisted due to the ban. Others, like Tether, have refrained from making such a move until they receive instructions from the authorities.
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
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