Six individuals have filed a compelling argument in support of lifting the ban on Tornado Cash, a cryptocurrency mixer known for enhancing transaction privacy. Their filing, submitted on May 24, bolsters the ongoing Coinbase-backed lawsuit against the U.S. Treasury, which was initially filed on September 8, 2022.
Contrary to misconceptions, the plaintiffs assert that this case does not seek to establish special regulations for new technology. Instead, it aims to hold the Treasury accountable for exceeding its authority by imposing sanctions on Tornado Cash. The six plaintiffs are Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch.
One of the primary arguments put forth by the plaintiffs is that the Treasury failed to demonstrate that Tornado Cash qualifies as a “foreign national.” Additionally, they question the Treasury’s definition of Tornado Cash itself. According to the Treasury, Tornado Cash is an unincorporated association that encompasses anyone holding a digital TORN token, regardless of whether they share a common purpose.
The plaintiffs contest this definition, arguing that it does not align with the Treasury’s understanding of an “unincorporated association.” They further state in their filing, “The oddity of that definition is underscored by the Department’s unprecedented step of explicitly excluding from the designation the very individuals that it says create the ‘organizational structure’ of that association.”
In response to the Treasury’s definition, Paul Grewal, Chief Legal Officer at Coinbase, criticized it on Twitter, referring to it as a “novel legal theory” and highlighting its factual inaccuracies.
Furthermore, the plaintiffs note that sanctions are only applicable to “property,” which encompasses anything that can be owned. However, the Treasury has not clarified how the immutable, open-source smart contracts of Tornado Cash can be owned.
The plaintiffs argue that even if the smart contracts were considered “property,” the Treasury must still demonstrate that Tornado Cash has a vested “interest” in them. Under the International Emergency Economic Powers Act (IEEPA), the Treasury is required to establish that the Tornado Cash entity possesses a legal, equitable, or beneficial interest in the property. However, the Treasury Department has failed to provide evidence of such an “interest,” as per the plaintiffs’ argument.
Grewal simplifies the matter, stating, “No one – not the founders, not the developers, and certainly not the people who just happen to have TORN in their wallets – has a property interest in these immutable smart contracts.”
The plaintiffs’ final argument contends that the sanction violates the First Amendment right to free speech and is therefore unconstitutional. They assert that the Treasury’s justification for the ban essentially implies that the plaintiffs are free to express themselves elsewhere.
Grewal finds the ban concerning, emphasizing that the government cannot simply instruct law-abiding Americans to exercise their freedoms in alternative venues with fewer personal protections.
To clarify, the plaintiffs are not seeking preferential treatment for cryptocurrency. Rather, they request that the government satisfy the fundamental legal requirements before restricting access to a privacy tool that safeguards lawful transactions and donations.