Coinbase Backs Appeal to Overturn Tornado Cash Ban

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  • Coinbase has backed an effort to overturn the Tornado Cash ban in the U.S.
  • OFAC sanctioned the mixing service in 2022
  • Six individuals, backed by the company, have filed a complaint against the move

Six individuals, backed by Coinbase, have filed a renewed legal challenge against the United States Treasury in an attempt to reverse the decision to impose sanctions on the crypto mixer Tornado Cash. A motion for partial summary judgment was filed in a Texas District Court yesterday, with the plaintiffs requesting that the U.S. Office of Foreign Asset Control (OFAC) settle the first two counts of its original complaint, which was lodged in September 2022. If approved, this would enable the judge to make a ruling on some of the factual issues, while leaving others for the trial.

OFAC Overstepped its Powers

The first issue addressed in the filing is that OFAC overstepped its statutory powers under the International Emergency Economic Powers Act (IEEPA), with the plaintiffs alleging that OFAC violated a section of the IEEPA that permits the Treasury to take action against property in which a foreign country or national has an interest.

The motion asserts that this provision is only applicable to property-related actions against a foreign “national” or “person,” and not open-source software, with applicants contending that the roughly 20 smart contracts responsible for Tornado Cash’s functionality should not be classified as property under the IEEPA because they cannot be owned:

An immutable smart contract is incapable of being owned, it is not property and the Department lacks authority under IEEPA and the North Korea Act to prohibit transactions with those smart contracts.

Crypto lobby group Coin Center has already filed a legal challenge against the Tornado Cash ban along similar grounds.

Code is Protected Under U.S. Constitution

The second primary argument presented by the plaintiffs is that OFAC’s ban on the open-source code violates the free speech clause of the First Amendment of the U.S. Constitution. The plaintiffs highlighted that OFAC has the authority to take action against “crypto thieves” such as North Korea’s Lazarus Group, but a “complete prohibition is excessively disproportionate” since money laundering represented only 0.05% of crypto transactions in 2021:

To prohibit all uses of Tornado Cash is like prohibiting the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon.

This issue of the ban being unconstitutional is backed by outgoing Kraken CEO Jesse Powell and has its roots in a 1990s legal battle fought by mathematician Daniel Bernstein over the ability to class computer code as a form of free speech. The plaintiffs added that the motion put forward by the government is part of a broader effort to restore internet privacy rights for U.S. citizens, which has been a hot topic for several years now.