Per the plaintiffs, โthis case is not about carving out special regulations for new technology,โ but rather holding the Treasury โto the basic requirements of the International Emergency Economic Powers Act (IEEPA) and the Free Speech Clause of the 1st Amendment to theย Unitedย States Constitution.โ
Taking to Twitter, Coinbaseโs chief legal officer Paul Grewal summarized the arguments, stating that โthey all come down to the same problem,โ that the Government is tryingย to ban open-source software using a property sanctions statute.
โBecause this isnโt what the law was meant to do, [the Government] canโt make the law fit this case,โ argues Grewal.
The plaintiffs make 4 points here, but they all come down to the same complication. The Government. is attemptingย to ban the use of an open-source software using a property sanctions statute. Because this isnโt what the law was meant to do, they canโt make the law fit this case. 2/7
โ paulgrewal.eth (@iampaulgrewal) May 24, 2023
Tornado Cash is a privacy-focused service that allows people to transact anonymously on the Ethereumย (ETH) blockchainย tech by mixing usersโ transactions to make it difficult to identify individual senders or receivers.
The Department of the Treasuryโs Office of Foreign Assets Control (OFAC) controversially added the mixer to its Specially Designated Nationals and Blocked Individuals (SDC) list in August 2022, thereby sanctioning Ethereumย (ETH) wallets associated with the service.
An official statement from Unitedย States regulatoryย authorities alleges Tornado Cash has helped launder greaterย than $7 Billion dollars since its inception in 2019, citing North Korean attackers and other malicious actors.
A lawsuit against the Treasury, which is backed by Coinbaseย Cryptoย exchange and likewise named Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki, was filed shortly after, with the sanctions against Tornado Cash contested on four main points.
First, the plaintiffs contend that the Treasury defined โTornado Cashโ to include anyone who holds a digital cryptoย token TORN, despiteย theย factย that โthat is not an unincorporated association under the Departmentโs own test.โ
Commenting on this point, Grewal stated that โsanctions depend on assuming that anyone who happens to hold a digital cryptoย token (TORN) is a member of a legally-recognized entity wasย known โTornado Cash.โ Thatโs novel as a legal theory, and itโs wrong as a factual matter.โ
The Second argument centers on the Departmentโs failure to explain how the immutable, open-source smart contracts listed in the designationโwhich no one can own or controlโare sanctionable โproperty.โ
As stated by Grewal, โthe legal definition of property is something that can be owned. Onย theย otherย hand, the open-source, immutable smart contracts at the heart of this privacy software cannot be owned, controlled, or changed by anyone.
Consequently, the third challenge isย theย factย that no one, including the creators, developers, or owners of TORN cryptoย tokens, has a โproperty interestโ in these smart contracts, reportsย by Grewal.
โIn seeking to find such an interest, the Department relies only on states that the purported Tornado Cash entity has interests in something other than the immutable smart contracts or would tend to profit from increased use of the immutable smart contracts. Neither one is an โinterestโ in property in the immutable smart contracts, as IEEPA requires,โ reads the filing.
1st Amendment Violation
The fourth argument refers to what the plaintiffs say is the violation of the 1st Amendment, which broadly protects the rights of free speech.
โSanctioning Tornado Cash unconstitutionally burdened speech under the 1st Amendment,โ stated Grewal. โPlaintiffs used the software toย guard their privacy while engaging in core 1A speech like important donations.โ
Reportsย by Coinbaseโs chief legal officer, the Governmentโs response is โworrisomeโ as it basically tells people โgo speak somewhere else.โ
โ Onย theย otherย hand, the 1A is stronger than that. The Government. canโt simply tell law-abiding Americans to go exercise their freedom in some other venue with far fewer personal protections,โ added Grewal.
Argument #4: Sanctioning Tornado Cash unconstitutionally burdened speech under the 1st Amendment. Plaintiffs used the software toย guard their privacy while engaging in core 1A speech like important donations. The Govtโs answer is worrisome. Basically, it is โgo speakโฆ
โ paulgrewal.eth (@iampaulgrewal) May 24, 2023
The legal battle comes as the Dutch court on Wednesday granted Alexey Pertsev, the founder of Tornado Cash, permission to question blockchainย tech analytics company Chainalysis in his ongoing money laundering trial.
Reportsย by Chainalysisโ January report, 34 percent of all funds sent to Tornado Cash came from illicit sources, with the majorityย of activity concentrated on two forms of cybercrime: cryptocurrency hacks and scams.
Pertsevโs lawyers now want to question the company asย aย resultย of the role its data played in the developerโs arrest in August last year.
