Coinbase Backs Legal Challenge to Overturn Tornado Cash Ban for Enhanced Internet Privacy

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Coinbase, a leading cryptocurrency exchange, supports a new court action to revoke the Tornado Cash ban. This initiative is part of a more considerable effort to restore and protect internet privacy rights for citizens in the United States.

Legal Challenge to the Tornado Cash Ban

The United States Treasury is confronted with a fresh legal challenge seeking to reverse its decision to sanction the cryptocurrency mixer Tornado Cash. This challenge is brought forth by six individuals, supported by the cryptocurrency exchange Coinbase. 

The plaintiffs filed a motion for a partial summary judgment on April 5 in a Texas District Court, urging the U.S. Office of Foreign Asset Control (OFAC) to settle the first two counts from their original complaint submitted in September 2022.

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The judge will rule on specific factual issues if approved, leaving others for the trial. The counts allege that OFAC overstepped its statutory authority under the International Emergency Economic Powers Act (IEEPA) and infringed on the free speech clause of the U.S. Constitution’s First Amendment.

OFAC’s Alleged Overreach and Free Speech Violation

The plaintiffs first argue that OFAC violated a section of the IEEPA that permits the Treasury to take action against the property in which a foreign country or foreign national has an interest. They contend that the provision only allows property-related action against a foreign “national” or “person,” and it does not apply to open-source software.

To bolster their claim, the plaintiffs assert that the 20 smart contracts enabling Tornado Cash’s functionality should not be considered property under IEEPA, as they cannot be owned. They state:

“An immutable smart contract is incapable of being owned; it is not property, and the Department lacks authority under IEEPA and the North Korea Act to prohibit transactions with those smart contracts.” “No one has the right to alter them. No one has the right to delete them,” they added.

The plaintiffs’ second main argument is that OFAC’s ban on open-source code violates the free speech clause of the First Amendment to the U.S. Constitution. They note that while OFAC has the authority to take action against “crypto thieves” like North Korea’s Lazarus Group, a “total prohibition is thus grossly disproportionate,” as money laundering accounted for only 0.05% of crypto transactions in 2021.

The plaintiffs argue: “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.”

Restoring Internet Privacy Rights

The driving force behind this motion is a broader endeavor to reinstate internet privacy rights for U.S. citizens. This filing is the most recent development since the individuals initially sued the U.S. Department of Treasury in September. 

The six plaintiffs behind the filing are Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch. The filing reveals that most of the group had previously interacted with Tornado Cash.

Meanwhile, Tornado Cash’s creator, Alexey Pertsev, faces his own legal challenges in The Netherlands. Pertsev has been detained since August 18 on multiple money laundering charges.

The ongoing legal battle to overturn the Tornado Cash ban, backed by Coinbase, highlights the growing concern for internet privacy rights in the United States. As the case unfolds, it will be crucial to watch its implications for cryptocurrency regulations and the broader issue of online privacy.

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