Tornado Cash Plaintiffs Against the Government: Violation of First Amendment

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Individuals attempting to reverse the decision to penalize Ethereum mixing provider Tornado Cash detailed the case’s main points in a new court filing in favor of the continuing legal action against the U.S. Department of Treasury. They were supported by Coinbase’s chief legal officer Paul Grewal, who tweeted in a thread about it.

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

About Tornado Cash

Tornado Cash is a privacy-focused service that enables anyone to conduct transactions on the Ethereum blockchain anonymously by blending users’ transactions to make it challenging to pinpoint specific senders or recipients.

In August 2022, the Office of Foreign Assets Control (OFAC) of the Department of the Treasury controversially put the mixer on its Specially Designated Nationals and Blocked Persons (SDC) list, sanitizing Ethereum wallets linked to the service.

In an official statement, U.S. officials claim that since its launch in 2019, Tornado Cash has assisted in the laundering of more than $7 billion dollars. They base their claim on North Korean hackers and other nefarious individuals.

Shortly after, a complaint was launched against the Treasury, supported by Coinbase and also naming Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki. The case challenges the Treasury’s sanctions on Tornado Cash on four different grounds.

The plaintiffs contend that, rather than carving out special rules for new technology, the action is about holding the Treasury

“to the fundamental requirements of the International Emergency Economic Powers Act (IEEPA) and the Free Speech Clause of the First Amendment to the United States Constitution”

The government is trying to outlaw open-source software by invoking a property sanctions act, Coinbase’s chief legal officer Paul Grewal stated in a summary of the arguments posted on Twitter.

Grewal contends that “[the Government] can not make the law fit this case because this is not what the law was meant to do.”

U.S. Government Persecution of Crypto

As we previously reported, the U.S. government has been taking legal action against cryptocurrency companies since the latter half of 2022 and the beginning of this year. Through the CFTC and the SEC, it has asserted that cryptocurrency tokens are securities and has openly sued several crypto businesses and major exchanges. The U.S. government is allegedly forcing innovation in crypto out of the nation, according to several opponents who have spoken out against these tactics. In fact, companies have started considering relocating to Asia and Europe in search of more favorable crypto business climates than the United States.

Labeled “Operation Choke Point 2.0”, these actions cast a very unfavorable light on the government’s attack on Tornado Cash users, suggesting it had the same motivations, originating from a desperate fear of being unable to control the crypto space.

Plaintiffs’ Arguments

First, the plaintiffs claim that even though “that is not an unincorporated association under the Department’s own test,” the Treasury defined “Tornado Cash” to encompass anybody who owns a digital token TORN.

Grewal responded by stating that “sanctions depend on assumption that everyone who just so happens to own a digital token (TORN) is a member of a legally recognized business named ‘Tornado Cash.’ That is erroneous in terms of truth and innovative as a legal doctrine.

The Department has not adequately addressed how the open-source, immutable smart contracts specified in the designation—which no one can own or control—are sanctionable “property,” according to the second argument.

The legal definition of property, according to Grewal, is something that can be owned. However, no one can own, manage, or alter the open-source, irreversible smart contracts at the core of this privacy software.

The third issue is as a result that nobody has a “property interest” in these smart contracts, not even the designers, developers, or holders of TORN tokens, according to Grewal.

The Department’s search for such an interest is limited to claims that the alleged Tornado Cash organization has interests in things other than immutable smart contracts or that it would stand to gain from greater adoption of immutable smart contracts. According to IEEPA, neither of them constitutes a “interest” in any property contained in the immutable smart contracts.

Violation of the First Amendment

The plaintiffs’ claim that the First Amendment, which broadly protects the right to free expression, has been violated is discussed in the fourth argument.

According to the First Amendment, sanctioning Tornado Cash interfered with free expression. “Plaintiffs used the software to protect their privacy while engaging in important donations and other core 1A speech,” the statement reads.

The Government’s answer is “worrisome,” according to Coinbase’s chief legal officer, because it essentially advises individuals to “go speak somewhere else.”

But that is weaker than the 1A. The government cannot just instruct law-abiding citizens to enjoy their rights in a location with far less personal safeguards, continued Grewal. He tweeted:

Argument #4: Sanctioning Tornado Cash unconstitutionally burdened speech under the First Amendment. Plaintiffs used the software to protect their privacy while engaging in core 1A speech like important donations. The Govt’s answer is worrisome. Basically, it is “go speak somewhere else.” But the 1A is stronger than that. The Govt. can’t simply tell law-abiding Americans to go exercise their freedom in some other venue with far fewer personal protections. 6/7

The legal dispute occurs as the Dutch court on Wednesday approved Alexey Pertsev’s request to interrogate Chainalysis, a blockchain analytics firm, in relation to his current money laundering prosecution. Pertsev is the inventor of Tornado Cash.

34% of the cash submitted to Tornado Cash came from illegal sources, according to Chainalysis‘ January report, with the majority of activity concentrating on two types of cybercrime: crypto hacks and scams.

Because of the part the company’s data played in the developer’s arrest in August of last year, Pertsev’s attorneys now want to interrogate the business.

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