Coinbase-Backed Lawsuit Over Tornado Cash Sanctions Ends in Favor of Treasury Department

Defeat for Coinbase-Backed Lawsuit as Tornado Cash Legal Battle with Treasury Department Concludes. In a setback for a collective of cryptocurrency investors and developers, a federal judge in Texas has ruled against their lawsuit supported by Coinbase, favoring the United States Department of the Treasury. The litigation sought to annul the sanctions imposed on Tornado Cash, a cryptocurrency mixing service designed to bolster transaction privacy.

The crux of the case revolved around the assertion that the U.S. Treasury Department overstepped its jurisdiction by enacting sanctions on Tornado Cash, an argument backed by cryptocurrency exchange behemoth Coinbase. Tornado Cash provides users with the means to mix their cryptocurrency transactions, enhancing the difficulty of tracking them.

U.S. District Court Judge Robert Pitman, overseeing proceedings, granted a motion for summary judgment filed by the Treasury Department, thereby upholding the sanctions on Tornado Cash. The plaintiffs, consisting of individuals such as Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, had contested the legality of the sanctions.

Plaintiffs Assert Sanctions on Tornado Cash Infringe Upon Freedom of Expression The plaintiffs contended that the U.S. Treasury Department’s categorization of Tornado Cash transcended its legal authority concerning the property interests of foreign nationals, encroaching upon the principles of free speech. Nevertheless, Judge Pitman dismissed this argument, asserting that Tornado Cash legitimately qualified as an entity subject to such designation.

He emphasized that the decentralized autonomous organization (DAO) overseeing the crypto mixing service demonstrated a coherent purpose through its voting members. He likened this arrangement to that of a corporation, where shareholders might opt out of participating in shareholder meetings without destabilizing the overall structure of the entity.

Treasury Department Enforces Sanctions on Tornado Cash The legal dispute traces its origins back to August 2022, when the Treasury Department’s Office of Foreign Assets Control (OFAC) added Tornado Cash to its roster of Specially Designated Nationals. The Treasury Department reaffirmed the sanctions on Tornado Cash in November of the subsequent year, citing the involvement of North Korea’s Lazarus Group. This decision drew criticism from various cryptocurrency enthusiasts who saw it as a demonstration of excessive authority.

Following these events, the plaintiffs, backed by Coinbase, initiated a lawsuit in September 2022 to reverse the designation. Judge Pitman’s ruling implies that the inclusion of Tornado Cash on the list of sanctioned entities was well within the Treasury Department’s regulatory purview and consistent with its guidelines.

In response to the verdict, Coinbase’s Chief Legal Officer, Paul Grewal, affirmed the exchange’s intention to appeal the ruling. Grewal underscored the importance of pursuing legal channels to challenge the actions of the Office of Foreign Assets Control (OFAC) and expressed optimism about their stance.

The ruling not only determines the future of Tornado Cash but also carries broader ramifications for the regulatory framework governing cryptocurrency services. Tornado Cash has been exploited by numerous malevolent actors for money laundering, including the notorious North Korean hacker group Lazarus, which is reported to have laundered $455 million through the crypto mixer.



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