Tl;dr: Coinbase is funding a lawsuit brought by six people challenging the US Treasury Department’s sanctions of the Tornado Cash smart contracts and asking the Court to remove them from the U.S. sanctions list. The lawsuit explains that OFAC exceeded its authority from Congress and the President in sanctioning open source technology, rather than sanctioning the bad actors who used it or the property of those bad actors.
By Paul Growl, Chief Legal Officer
Today, Brian Armstrong shared why Coinbase is funding and supporting a challenge by six individuals (including two Coinbase employees) against the Treasury Department’s novel sanctions of open source software associated with Tornado Cash. I wanted to take a moment to share a little more detail about this legal action. At its core, this legal challenge is about how the Treasury Department exceeded the authority Congress and the President granted it in sanctioning open source technology, rather than sanctioning the bad actors who used it or the property of those bad actors. No one wants criminals to use crypto protocols, but blocking the technology entirely (which is what this sanction essentially does) is not what the people’s elected representatives authorized — especially when there are effective routes to more narrowly target bad actors. These sanctions represent a significant unauthorized expansion of OFAC’s authority, and they have harmed innocent people seeking to legitimately protect their privacy and security using this technology, as the stories of these six individuals make clear.
Tornado Cash Sanctions
On August 8, 2022, Treasury’s Office of Foreign Assets Control (“OFAC”) sanctioned Tornado Cash, an open source software project that uses smart contracts to allow users to send assets privately on the Ethereum network. As part of this action, OFAC added to its Specially Designated Nationals and Blocked Persons List (“SDN List”) Tornado Cash’s smart contracts, which are publicly available, open source tools that anyone can access to send assets from their private accounts and withdraw them to a different crypto address. Smart contracts are essentially code that is not controlled by any individual or group and is executed by the Ethereum network according to strict rules that cannot be modified.
While prior OFAC sanctions against individuals or entities sometimes listed crypto addresses owned or controlled by these bad actors, OFAC has never before sanctioned an open source…
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