The U.S. government’s rationale for imposing sanctions on the Ethereum mixer Tornado Cash is “dangerously misguided.” This was stated by Coinbase General Counsel Paul Grewal in a new legal action against the Ministry of Finance.
The expert summarized his arguments on Twitter. He believes that the authorities are trying to ban open source software on the basis of the law on property sanctions.
“The law is not designed for this, [правительство] cannot make it fit for this occasion,” Grewal wrote.
The lawyer challenged the Treasury’s assumption that “any owner of the native TORN token is a member of the legal organization Tornado Cash”:
“This is new as a legal theory and wrong as a matter of fact.”
His second argument relates to the agency’s failure to explain how the open-source, immutable smart contracts listed in the case are “property” subject to sanctions.
“The legal definition of property is what you can own. But the open-source, immutable smart contracts that underpin this privacy software cannot be owned, controlled, or modified by anyone,” Grewal said.
From this, according to him, follows the third conclusion: no one, including the creators, developers or owners of TORN tokens, has a “property interest” in these smart contracts.
“The government is only relying on claims that Tornado Cash will seek to profit from the increased use of immutable smart contracts. However, no member of the organization is a “person of interest” as required by IEEPA,” the statement said.
Fourth, the Treasury lawsuit violates the First Amendment, which protects freedom of speech.
“Sanctions against Tornado Cash are unconstitutionally burdened with First Amendment speech. Plaintiffs used the software to protect their privacy and make important donations,” Grewal said.
In general, the government’s arguments “caused concern” of Coinbase’s general counsel.
“The government can’t just tell law-abiding Americans to exercise their freedom somewhere else with far fewer personal protective equipment,” Grewal added.
Earlier, the US Treasury, during a lawsuit on the legality of blocking the Tornado Cash cryptocurrency mixer, compared TORN token holders with al-Qaeda terrorists. [признана террористической организацией и запрещена в ряде стран].
As a reminder, in August 2022 OFAC added the Tornado Cash website to the sanctions list, with the help of which, according to the agency, the attackers laundered more than $7 billion worth of cryptocurrencies. Over $455 million of them are associated with the activities of the North Korean hacker group Lazarus Group.
Shortly thereafter, Coinbase funded a lawsuit against the Treasury Department, Treasury Secretary Janet Yellen, and OFAC Director Andrea Gaki, demanding that mixer sanctions be lifted.
In April 2023, the bitcoin exchange also joined the appeal in the case.
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