Coinbase-backed crypto investors sue US Treasury Department over Tornado Cash sanctions

Coinbase claims the Treasury exceeded its authority in issuing the Tornado Cash sanctions.

According to a new lawsuit filed in the United States District Court, Western District of Texas. On Thursday, six users of the Ethereum blockchain and cryptocurrency mixer Tornado Cash sued the US Treasury Department, alleging that its recent designation of 44 Tornado Cash smart contracts goes to the Specially Designated Nationals (SDN) list of the Office of Foreign Asset Control (OFAC) is "not complying with the law".

As of August 8, US persons and entities are prohibited from interacting with sanctioned Tornado Cash smart contract, blockchain, or commercial addresses, subject to criminal or civil penalties for non-compliance. The plaintiffs request the cancellation of the designation on the basis of three arguments. First, they argue that Tornado Cash does not meet the definition of property, a foreign country or national thereof, or a person and therefore cannot be added to the SDN list.

Second, they claim a violation of their First Amendment (free speech) rights under the United States Constitution:

“Tornado Cash allows Plaintiffs to engage in important and socially valuable speech. However, due to the designation, Plaintiffs cannot use Tornado Cash to make donations to support important political and social causes and potentially controversial."

Third, the plaintiffs say that due to the Treasury designation, they could not access the Ether stored in the Tornado Cash pools. They argued that this alleged lack of a proper pre-deprivation process was in violation of legal process.

Later that day, cryptocurrency exchange Coinbase publicly supported the lawsuit. The company hailed the move as "the defense of privacy in crypto" and pledged to fund the lawsuit. “Sanctions override Treasury authority, harm innocent people, remove privacy and security options for crypto users, and stifle innovation,” Coinbase said. He then raised individual examples of alleged benefits of Tornado Cash:

"Someone used Tornado Cash to donate money to Ukraine anonymously. Afterward, their wallet received potentially malicious airdrops. But because...