By Mark Ackman
On Thursday, a lawsuit was filed against the Treasury Department by users of Tornado Cash, a crypto service that was recently sanctioned.
As it turns out, crypto exchange Coinbase has decided to foot the bill for the lawsuit in question, as there are six plaintiffs that include employees of the exchange.
There are also other users of the mixing service that was sanctioned in August by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The sanctions
Even though crypto transactions are mostly anonymous, they can be easily traced. This is where mixing services come in, as they help in obfuscating these transactions.
According to the Treasury Department, Tornado Cash had been used by North Korean hackers and other criminal actors for laundering approximately $7 billion worth of crypto in the past three years.
However, mixing services can also be used for some genuine privacy reasons. For instance, Coinbase’s senior security risk analyst, who is one of the plaintiffs, used it for a legitimate reason.
It was used for making anonymous donations to Ukraine because of fears of being a target of Russian hacking groups. Another one had been concerned about the security of his family.
The lawsuit said that each of the plaintiffs are American citizens who wanted to perform lawful activities while maintaining their privacy.
A larger problem
When the Treasury decided to sanction the mixing service, it was a unique move because it was blacklisting open source software, rather than a person or an entity.
According to crypto enthusiasts, this move from the OFAC is an overstep because it has established new legal precedents in the crypto industry, which can have a lot of negative effects.
The chief legal officer at Coinbase, Paul Grewal said that they consider this part of a much bigger problem.
He said that this establishes a rather dangerous precedent because it means that any technology or tool could be sanctioned by the Treasury.
Former Facebook employee, Grewal said that this could put innovation at risk. He likened the Tornado Cash sanction to how police go after robbers on the highway.
He said that banning the use of highways is not a solution. He added that it was the first time that Coinbase supported an external lawsuit financially.
The lawsuit
According to the lawsuit, the Treasury had overstepped its authority when it imposed the sanctions.
The plaintiffs have claimed that can lead to financial losses because they still have their funds locked in the mixing service.
They also added that it would also hurt users who were using the service for privacy purposes. A request was also submitted to the court for the removal of the Tornado Cash smart contracts from the sanctions list.
Coinbase is the biggest crypto exchange in the US in terms of trading volume and has been vocal in its support for crypto reforms.
Grewal said that they were in favor of regulatory reform and would continue to cooperate with agencies in this regard.