The U.S. Treasury Department is facing a new legal challenge aimed at overturning a decision to sanction cryptocurrency mixer Tornado Cash, filed by six people backed by cryptocurrency exchange Coinbase. On April 5, a Texas District Court filed a motion for partial summary judgment, with the Coinbase-backed plaintiffs asking the U.S. Office of Foreign Assets Control (OFAC) to settle the first two counts of its original complaint filed in September. 2022.
If approved, it would see judges rule on some issues of fact while leaving others to trial. The charges allege that OFAC exceeded its statutory authority under the International Emergency Economic Powers Act (IEEPA) and violated the Free Speech Clause of the First Amendment to the U.S. Constitution. The plaintiffs start by claiming that OFAC violates the part of IEEPA that allows the Treasury Department to take action against foreign countries or property in which foreign persons have an interest.
The motion argues that because the provision only allows property-related actions against foreign "nationals" or "individuals," it does not apply to open source software. To strengthen its claim, the plaintiffs argue that the more than 20 smart contracts that provide functionality to Tornado Cash should not be considered property under IEEPA because they cannot be owned:
“An immutable smart contract cannot be owned, it is not property, and under the IEEPA and the North Korea Act, the department does not have the power to prohibit transactions with these smart contracts.” "No one has the right to change them. No one has the right to delete them," they added. The second major argument made is that, by banning open source code, OFAC violates the Free Speech Clause of the First Amendment to the U.S. Constitution.
The plaintiffs noted that OFAC has the power to take action against “crypto thieves” like North Korea’s Lazarus Group, but “therefore a complete ban would be highly disproportionate” since money laundering accounted for only 0.05% of crypto transactions in 2021.
"Banning all uses of Tornado Cash is akin to banning a printing press, in that a small percentage of users might publish instructions on how to make a nuclear weapon," they added. The plaintiffs explained that the motivation behind the motion is part of a broader effort to restore American citizens' right to privacy on the Internet. This is the latest filing since individuals first sued the Treasury Department last September.
The six plaintiffs who filed the lawsuit are Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. The document details that most of the group had previously interacted with Tornado Cash. The lawsuit comes as Tornado Cash founder Alexey Pertsev is facing troubles of his own in the Netherlands. He has been in custody since Aug. 18 on a string of money laundering charges.
