Coinbase Funds U.S. Treasury Lawsuit over Tornado Cash Sanctions

The plaintiffs previously used Tornado Cash for legitimate purposes and have been financially harmed as a result of the sanctions.

rypto exchange Coinbase is funding a lawsuit against the Treasury Department over its decision to sanction coin mixer Tornado Cash.

Among the six plaintiffs are two Coinbase employees, Tyler Almeida, senior security risk analyst and Nate Welch, senior software engineer. They claim that Treasury Secretary Janet Yellen and Director of OFAC Andrea Gacki overstepped their authority by blocking financial transactions.

The lawsuit claims that the department entrapped law-abiding Americans conducting legitimate digital commerce through a cryptocurrency service that provides enhanced privacy and security.

The plaintiffs previously used Tornado Cash for legitimate purposes and have been financially harmed as a result of the sanctions.

“Plaintiffs seek declaratory and injunctive relief under the United States Constitution and the Administrative Procedure Act to remedy the Defendants’ unlawful action.”

Tornado Cash was accused by the Treasury’s Office of Foreign Assets Control (OFAC) of laundering more than $7 billion in cryptocurrencies since its inception in 2019. It has been added to OFAC’s list of Specially Designated Nationals and Blocked Persons.

The agency sanctioned Tornado Cash-related crypto wallets as well as related codes known as smart contracts.

According to the lawsuit, while the Treasury Department’s OFAC has certain sanctions authority, it does not have jurisdiction over software code or smart contracts. It also claims that the department barred them from using a tool that allowed them to exercise their rights to free speech.

Coinbase Chief Executive Officer Brian Armstrong had expressed his opposition to the sanctions in tweets and retweets, implying that legal action would be taken.

“None of the Plaintiffs is a terrorist or a criminal. None supports terrorism or illegal activity. None launders money. Each is an American who simply wants to engage in entirely lawful activity in private,” the complaint read.

According to the lawsuit, Tyler Almeida, who used Tornado to send a donation to Ukraine, now has some funds locked in the service amid OFAC’s sanctions.

While Nate Welch prefers Tornado because it has “the highest volume of users and transactions, which ensures greater anonymity by making it more difficult to trace particular Ether to particular users.”