A Coinbase-backed lawsuit regarding Tornado Cash sanctions has wider implications for digital assets. The legal argument centers on whether sanctions can be applied to code running on a decentralized network.
This simple, yet complicated question is at the core of a legal battle backed by one the largest cryptocurrency exchanges in the world. This answer could have significant implications for the government’s ability to regulate digital assets.
Six Tornado Cash users are suing Coinbase for violating the U.S. Treasury Department’s sanction of the currency mixer last month for allegedly laundering illicit funds. Other cryptocurrency advocates and the exchange fear that such powers could cause disruption to wider networks, including the entire Ethereum blockchain, and further legal uncertainty in the industry.
Is it Possible for the US Government to sanction computer code?
Paul Grewal, Coinbase’s chief legal officer, stated to The Block that OFAC has the power to target property or persons. The smart contracts they’re referring to,” which enable Tornado Cash, “these ain’t neither persons nor properties.
Although the U.S. government has not yet responded, it will want to keep broad powers to stop criminals from receiving funds. In this instance, hackers backed by North Korea government are included. According to Treasury, Tornado Cash was used by the U.S. government to launder more than $7 billion in 2019, including $455 million that was stolen by a Pyongyang-sponsored group.
Brian Nelson, Treasury’s undersecretary of terrorism and financial Intelligence, presented Treasury’s stark view on the matter last month when it announced its sanctions against the currency mix.
Nelson stated in a release that Tornado Cash “despite public assurances contrary, has repeatedly failed to implement effective controls designed to prevent it from laundering funds to malicious cyber actors on an ongoing basis and without basic steps to address its risks.” “The Treasury will continue to pursue aggressive actions against mixers that use virtual currency to support criminals.
A spokesperson from Treasury declined to comment further. The Justice Department will represent Treasury as is customary in cases involving government decisions being challenged.