Coinbase Heads to Court: Still Backing Action to Overturn Tornado Cash Ban

Coinbase initially funded the plaintiffs in their fight to overturn the ban.

Brian Armstong sitting outside Court at a stormy night.
  • Six plaintiffs have brought forward a motion against the OFAC.
  • Coinbase funded the same plaintiffs to fight the case against Tornado Cash.
  • The arguments are based on smart contracts not being ‘property,’ as well as the violation of free speech.

The landmark case against crypto mixer Tornado Cash and the subsequent arrest of its creator Alexey Pertsev has split opinions. The issue of prosecuting open-source code is being seen as a violation of the free speech clause of the First Amendment to the U.S. Constitution.

Major crypto exchange Coinbase has backed six plaintiffs who are now proposing a partial summary judgment against the U.S. Office of Foreign Asset Control (OFAC). Coinbase, and the plaintiffs, are defending the privacy that a service like Tornado Cash offers as well as fighting against placing sanctions on smart contracts and code.

Coinbase, in September 2022, initially said it would fund a lawsuit brought by the same six users against the U.S. Treasury Department to block sanctions barring Americans from Tornado Cash. Now, the Coinbase-backed plaintiffs are moving for the OFAC to settle for the first two counts from its original complaint filed in September.

“Simple, but Powerful”

The plaintiffs are bringing forward a few relatively straightforward arguments that could significantly affect the case’s outcome. If their motion were granted, the judge would rule on some factual issues while leaving others for the trial.

Firstly, the plaintiffs claimed that OFAC breached a section of the International Emergency Economic Powers Act (IEEPA) that allows the Treasury to take action against the property in which a foreign country or foreign national has an interest.

The argument stands that the provision only applies to a foreign national or person and not open-source code. It is argued that the smart contracts that Tornado Cash run on should not be considered property under IEEPA because they cannot be owned.

The second argument is that banning the open-source code would see the OFAC violating the free speech clause of the First Amendment to the U.S. Constitution.

“To ban all uses of Tornado Cash is akin to banning the printing press because a tiny fraction of users might publish instructions on how to build a nuclear weapon,” the plaintiffs said.

However, Tornado Cash has been implicated with money laundering from North Korea – which the U.S. certainly sees as a major security risk, making overturning this case extremely difficult. 

On the Flipside

  • After the arrest in August last year, a decision on Pertsev’s custody was made on February 20, but he was ordered to stay behind bars for another three months. The next time Pertsev will have a hearing on his detention will be on April 21. 

Why You Should Care

Advocates for crypto and internet privacy and the OFAC have strong cases on either side of this discussion around Tornado Cash. Legal experts do not expect this to be easy to solve and could be precedent-setting. 

Read more about the arrest of Tornado Cash developer Alexey Pertsev:
Tornado Cash Developer to Stay Behind Bars Until February.

Read more about the uphill battle Binance’s Compliance Chief is facing:
Binance’s Compliance Chief: Crypto Treated Unfairly Compared to TradFi.

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Darryn Pollock

Darryn Pollock is a South African-born, UK-based journalist and content writer for DailyCoin with a focus on regulation and legislation revolving around the cryptocurrency space. He has covered the evolving crypto regulatory space, and examined how the US has approached law-making to offer protection in the growth of innovation. Darryn values traditional journalistic principles of truth, accuracy, independence, fairness, and impartiality, and has a Bachelor of Arts degree in Journalism and Law from Rhodes University in South Africa.