Coinbase Funding Lawsuit Against Treasury Department

Coinbase Funding Lawsuit Against Treasury Department

Coinbase is funding a lawsuit against the U.S. Treasury Department challenging the government’s ban on cryptocurrency mixer Tornado Cash, the company announced in a series of blog posts.

The cryptocurrency exchange said it is paying the legal costs for six people, including some key Ethereum developers and two Coinbase employees, who are suing to reverse the August decision of the Treasury’s Office of Foreign Assets Control, according to documents on file with the U.S. District Court in Waco, Texas.

Tornado Cash was sanctioned by the Treasury in August for its use by hackers to obfuscate stolen funds — including hackers like the North Korea-sponsored Lazarus Group. After the sanctions were announced, one of the developers of the service was arrested and the open source code for Tornado Cash was removed from Github.

Sanctioning open source software is like permanently shutting down a highway because robbers used it to flee a crime scene,” said Coinbase CEO Brian Armstrong in a blog.  

Armstrong said that the Treasury overreached by sanctioning open source software, not people or property, which it has purvey over. 

“We believe law-abiding citizens have a right to privacy, especially with some of their sensitive data: their finances,” he said.

In his blog post, Armstrong alluded to a few of these citizens — the plaintiffs of the lawsuit filed Thursday.

Coinbase says it is supporting the lawsuit financially, though it’s unclear how much the company had to do with the formation of the legal argument and what level of contact they had with its plaintiffs. Attempts to reach Armstrong and Chief Legal Officer Paul Grewal were unsuccessful, though Armstrong indicated a "legal challenge" to the OFAC decision could be coming in an August tweet.

Lucky Trader did get in contact with one of the plaintiffs, Ethereum developer and Prysmatic Labs co-founder Preston Van Loon, though questions were forwarded to his lawyers and have not been returned as of Friday morning. 

The lawsuit does mention two Coinbase employees, a senior security risk analyst named Tyler Almeida and Nate Welch, a senior software engineer at Coinbase, who has used Tornado Cash six times to “avoid harassment from malicious actors,” according to the lawsuit. 

Welch is also unable to access 1.2 ETH that is in a Tornado Cash wallet due to the sanctions, the complaint says. Welch’s lawyers are arguing that he was not afforded due process to access his funds. 

Almeida used Tornado Cash to donate anonymously to the Ukrainian government in the midst of its war with Russia. The complaint says Almeida used the service to make his donation anonymous and prevent his financial history from being associated with his political views and due to fears that wallets that donated to Ukraine “would be targeted by Russian state-sponsored hacking groups.”

Van Loon said the decision to sue the government was not "taken lightly." The developer, who is the creator of Ethereum proof-of-stake client Prysm, has used Tornado Cash five times, according to documents, to "experiment with decentralized applications" privately.

"I'm already a public person in the Ethereum space so I was willing to put myself out there for this cause," said Van Loon in a direct message. "These sanctions have harmed myself and many others. I am concerned about the repercussions of the Tornado Cash sanctions through the development of DeFi protocols and even Ethereum's core protocol."

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