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Coinbase-backed motion makes 4 key arguments to lift Tornado Cash sanctions


Coinbase-backed motion makes 4 key arguments to lift Tornado Cash sanctions

According to the filing, the Treasury lacks the authority to prohibit Tornado Cash and transactions associated with it.

Six individuals seeking to overturn the United States Treasury’s decision to sanction crypto mixer Tornado Cash have just relayed four key arguments in support of their motion.

In a May 24 filing in support of a prior motion for partial summary judgment, the individuals argue that the “case is not about carving out special rules for new technology” but rather was a case of government overreach and a breach of First Amendment rights.

The plaintiffs make 4 points here, but they all come down to the same problem. The Govt. is trying to ban the use of an open-source software using a property sanctions statute. Because this isn’t what the law was meant to do, they can’t make the law fit this case. 2/7

— paulgrewal.eth (@iampaulgrewal) May 24, 2023

Coinbase’s chief legal officer, Paul Grewal, summarized the arguments in a Twitter thread soon after, arguing that the government is seeking to use a property sanctions statute to ban open-source software — which is contrary to the intentions of the law.

Coinbase has backed the lawsuit against the U.S. Department of Treasury, which was first filed on Sept. 8, 2022. The six plaintiffs behind the filing are Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. The filing detailed that most of the group had previously interacted with Tornado Cash.

Four key arguments

The first of these arguments relate to the Treasury’s attempt to classify Tornado Cash as a foreign “national” — which it must do to justify its action — by calling it an unincorporated association.

But the plaintiffs noted that the Treasury had defined Tornado Cash to include all holders of the TORN token, whether or not they have combined for any common purpose. The plaintiffs argue that as a result of this definition, Tornado Cash can’t be classified as an unincorporated association based on the Treasury’s own tests.

Argument #2: The law says that sanctions can only block *property.* The legal definition of property is something that can be owned. But the open-source, immutable smart contracts at the heart of this privacy software cannot be owned, controlled, or changed by *anyone*. 4/7

— paulgrewal.eth (@iampaulgrewal) May 24, 2023

The second argument refers to how the open-source smart contracts which provide Tornado Cash with functionality cannot be considered property as property refers only to something which can be owned.

Even if these smart contracts could be considered property, the plaintiff’s third argument is that no Tornado Cash entity has any “interest” in them, and therefore the Treasury does not have the authority to sanction it.

Screenshot highlighting the third and fourth key arguments by the plaintiffs. Source: Court filing

The final argument is that even if the Treasury does have the authority to do so, sanctioning Tornado Cash violates the First Amendment, and the Treasury is unable to defend this imposition by claiming that Tornado Cash users should engage in free speech elsewhere.

Related: Tornado Cash attacker to potentially give back governance control, proposal reveals

The Treasury initially sanctioned a number of addresses linked with Tornado Cash on August 8, 2022, just a month after the user interface code was open-sourced.

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