Coinbase-Backed Motion Says Tornado Cash Ban is ‘Unconstitutional’

Six plaintiffs in the Coinbase-backed legal challenge to US government sanctions against Tornado Cash filed a motion for summary judgment on Wednesday arguing the crypto mixer, by design, cannot be sanctioned as property.

The motion seeks to reopen Tornado Cash for all US-based citizens in a bid to regain what the plaintiffs, including Coinbase, are calling violations of their Constitutional rights.

The case is being closely watched by crypto proponents, as it has implications for the legality of privacy-enhancing technologies and the ability of US individuals to use them.

In response, Coinbase’s Chief Legal Officer Paul Grewal said, in a tweet on Wednesday, the arguments laid out by Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch were “simple but powerful.”

Grewal said that while privacy could be abused in select circumstances, the US law recognizes that “we don’t take away privacy from all just because of the unlawful acts of a few.”

In Tornado Cash’s defense, the plaintiffs are arguing the government can’t sanction the mixer because it is not a foreign “national,” “person” or group of people who’ve never met but is instead software. 

Tornado Cash was added to the OFAC’s SDN list by the US Treasury in August last year after it was alleged the platform was used to launder $7 billion worth of digital assets from nefarious and state actors.

A month later, Coinbase joined the six individuals, offering to fund the lawsuit aimed at removing the mixer from OFAC’s list and curbing Treasury’s “significant unauthorized expansion” of its authority.

Actions taken against the mixer have also stirred reactions from the crypto community, whose mantra “code is law” expresses the idea that the rules and regulations governing the behavior of users within blockchain ecosystems should be determined by software code rather than a centralized authority.

The US Case against Tornado Cash

The US government disagrees, calling Tornado Cash a threat to economic sovereignty and a tool used by the nation’s enemies to fund activities that directly harm it.

In their motion, plaintiffs also argued the law only permits the government to sanction a person’s property, with the definitions falling to something capable of being owned or controlled. 

It is said the 20 or so smart contracts governing the core of Tornado Cash’s system, which function without human control, should not be subject to the whims of Congress and its definition of the term “property.” 

“Smart contract addresses are not persons under the statute, this cannot be genuinely disputed,” Ian Corp, commercial litigator and crypto advisor at law firm Agentis told Blockworks in an email.

“The plaintiffs’ counsel was smart to liken Tornado Cash’s code to an unincorporated entity/association, which is beyond the definition given under binding law. So, they make a strong argument that OFAC exceeded its authority when sanctioning Tornado Cash,” he said.

The risks of that being retroactively applied to other forms of software in disagreement with Congress could have far-reaching implications, the plaintiffs argue. Those smart contracts are also not owned by any one entity or individual, they said.

It’s also being argued that OFAC’s sanctions violate the First Amendment as they consisted of a broad approach blocking “thousands of law-abiding American citizens from interacting with open-source code to engage in a wide range of speech.”

An example of one plaintiff who used Tornado Cash for political speech — whereby they donated to the Ukrainian government after Russia’s invasion — was also highlighted in the motion.

“Without the privacy afforded by Tornado Cash, users such as Mr. Almeida are hindered in expressing their views on the Russian invasion by sending money to the Ukrainian government,” the motion reads.

“An issue I anticipate the plaintiffs running into is the esoteric nature of Tornado Cash, immutable smart contracts, and the technology-neutral ethos the software was created with,” Corp added.

“Judges want to promote justice and do the right thing. When the government makes an argument that it has a compelling interest in protecting the United States from a cybercrime group from North Korea, that is hard to ignore,” he said.

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