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Crypto Giant Coinbase Challenges U.S. Treasury over Sanctioning of Tornado Cash
In a bold move, Paul Grewal, the chief legal officer of Coinbase, has taken a stand against the U.S. Treasury’s stringent measures aimed at Ethereum mixer protocol Tornado Cash. Grewal has criticized the Treasury for what he calls the stretching of archaic laws beyond reasonable limits.
A cryptocurrency mixer serves to obscure the details of a transaction, providing users of public blockchains with a degree of privacy. However, regulators have now placed the burden of responsibility on developers and holders of the TORN governance token whenever these mixers are utilized for illicit fund transfers.
This stance led to the U.S. Treasury’s Office of Foreign Asset Control imposing sanctions on Tornado Cash in 2022. Subsequently, federal prosecutors brought charges against Tornado Cash founders, Roman Storm and Roman Semenov, accusing them of money laundering, sanctions breaches, and conspiracy to operate an unlicensed money-transmitting enterprise.
Pushing back against these actions, Tornado Cash filed a lawsuit against the U.S. government, with the support of Coinbase. The ongoing legal battle has prompted Grewal to share his insights on the matter. He pointed out a crucial flaw in the government’s argument, particularly its attempt to classify code as property subject to Treasury regulation.
Grewal argued that “immutable, open-source software code isn’t property,” which poses a challenge for the Treasury, as its regulatory ambit is limited to “property” where a foreign national holds an interest. This assertion was made through a series of messages on Twitter.
Bending old laws past their breaking point is not the way. We look forward to the Fifth Circuit’s careful consideration. 6/6
— paulgrewal.eth (@iampaulgrewal) April 15, 2024
Coinbase has emphasized the broader implications of this legal dispute for the cryptocurrency industry. The company believes that proving the Treasury’s lack of authority to sanction a mixer protocol is crucial. Coinbase CEO Brian Armstrong likened the act of sanctioning open-source software to permanently shutting down a highway due to criminal activity.
In a blog post addressing the lawsuit, Armstrong stated, “It’s not the best way to solve a problem. It ends up punishing people who did nothing wrong and results in people having less privacy and security.”
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