Coinbase-Backed Plaintiffs Challenge US Treasury's Tornado Cash

The US Treasury's decision to sanction Tornado Cash, a cryptocurrency

Six individuals with the backing of Coinbase have filed a motion challenging

In a Texas District Court on April 5, six individuals supported by Coinbase filed a motion for a partial summary judgment. They requested that the U.S. Office of Foreign Asset Control (OFAC) settle the first two counts from their complaint, which was initially filed in September 2022.

Should the request be accepted, the judge would make a decision on some factual matters and reserve others for trial. The plaintiffs assert that the U.S. Office of Foreign Asset Control (OFAC) went beyond its authorized powers under the International Emergency Economic Powers Act (IEEPA) and disregarded the free speech clause of the First Amendment of the U.S. Constitution.

According to the plaintiffs, OFAC violated a section of the IEEPA that permits the Treasury to take action against property with foreign interests. The motion argues that this provision only applies to foreign "national" or "person" and not to open-source software, therefore OFAC's actions were invalid.

The plaintiffs strengthen their argument by stating that smart contracts enabling Tornado Cash's functionality cannot be categorized as property under IEEPA since they cannot be owned. They contend that an "immutable smart contract is incapable of being owned" and hence, the Treasury lacks the authority to ban transactions with such smart contracts under IEEPA and the North Korea Act.

The plaintiffs argue that OFAC is violating the free speech clause of the First Amendment to the U.S. Constitution by banning the open-source code. They acknowledge that OFAC has the power to take action against "crypto thieves" such as North Korea's Lazarus Group but believe that a "total prohibition is grossly disproportionate," as money laundering only accounted for 0.05% of crypto transactions in 2021. 

The motion compares banning all uses of Tornado Cash to banning the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon.

According to the motion, the plaintiffs state that banning the use of Tornado Cash's open-source code is similar to restricting freedom of speech. According to the motion, the prohibition of Tornado Cash is excessive when considering that money laundering only constituted 0.05% of cryptocurrency transactions in 2021.

The motion states that the comparison to banning the printing press is apt: "To ban all uses of Tornado Cash" is similar to prohibiting the printing press because a few users may publish instructions on building a nuclear weapon.

The six individuals, including Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch, who had previously interacted with Tornado Cash, filed a motion on April 5 in a Texas District Court to nullify the decision to sanction the cryptocurrency mixer. 

The motion requests that the U.S. Office of Foreign Asset Control (OFAC) settle for the first two counts from its original complaint filed in September 2022. The plaintiffs' main argument is that OFAC exceeded its statutory powers and violated the free speech clause of the First Amendment to the U.S. Constitution.

The plaintiffs aim to restore internet privacy rights for U.S. citizens, and this is the most recent filing since their first lawsuit against the U.S. Department of Treasury. Meanwhile, Alexey Pertsev, the creator of Tornado Cash, is facing legal troubles in The Netherlands, where he has been held on a series of money laundering charges since August 18.

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