US Treasury 'Bending Old Laws Past Their Breaking Point' in Tornado Cash Case: Coinbase

Paul Grewal, Coinbase's chief legal officer, said Monday night that the U.S. Treasury is "bending old laws past their breaking point" in its quest to sanction Ethereum mixer protocol Tornado Cash.

A cryptocurrency mixer obscures the sender and receiver of a transaction, affording people who use public blockchains some privacy. But regulators have decided that the developers and holders of the TORN governance token bear responsibility if and when the mixers have been used to transfer illicit funds.

As a result, in 2022, the U.S. Treasury's Office of Foreign Asset Control sanctioned Tornado Cash. Federal prosecutors then filed charges against Tornado Cash founders Roman Storm and Roman Semenov, charging them with money laundering, sanctions violations, and conspiracy to operate an unlicensed money-transmitting business.

In a bid to fight back, Tornado Cash sued the U.S. government—with Coinbase's backing.

Coinbase Backs Tornado Cash Lawsuit Against U.S. Treasury

A group of Tornado Cash users filed a lawsuit against the U.S. Department of Treasury, calling its sanctioning of the Ethereum mixing service an "unprecedented, overbroad action." The suit, which is being funded by Coinbase and includes several employees as plaintiffs, also names Treasury Secretary Janet Yellen and Director of the Office of Foreign Assets Control (OFAC) Andrea Gacki. A month ago, OFAC added Tornado Cash to its Specially Designated Nationals and Blocked Persons (SDC) list, thereb...

Nw that there's been some movement in case, Grewal is sharing his thoughts. One of the holes in the government's argument, he said, was trying to prove that code is property, and therefore something that the Treasury can regulate.

"Immutable, open-source software code isn’t property, which creates a real issue for Treasury, as it’s authorized to regulate only 'property' in which a foreign national has an interest," he wrote in a thread of messages on Twitter (aka X) late Monday.

Coinbase has made it clear that the crypto industry at large has a lot at stake in proving that the Treasury doesn't have the authority to sanction a mixer protocol.

"Sanctioning open-source software is like permanently shutting down a highway because robbers used it to flee a crime scene," Coinbase CEO Brian Armstrong wrote in a blog post about the lawsuit. "It's not the best way to solve a problem. It ends up punishing people who did nothing wrong and results in people having less privacy and security."

Edited by Andrew Hayward