Coinbase Supports Lawsuit Against U.S. Treasury Over Tornado Cash Sanctions

Cryptocurrency platform Coinbase has announced its support for a lawsuit previously filed by six individuals against the U.S. Department of the Treasury. The case challenges sanctions imposed by the Treasury on the open-source cryptocurrency mixer Tornado Cash, which many in the crypto community consider unjustified.

On August 8, 2022, the U.S. Office of Foreign Assets Control (OFAC) stated that more than $7 billion had been laundered through Tornado Cash since its creation in 2019. According to OFAC, the operators of Tornado Cash failed or refused to implement “effective controls designed to prevent regular money laundering by bad actors.”

As a result, sanctions were imposed on the mixer service: all property and interests in property of Tornado Cash located in the U.S. or under the control of U.S. persons were blocked and must now be reported to OFAC. U.S. citizens and others in the United States are now prohibited from doing business with Tornado Cash without special permission from OFAC. Additionally, any organizations directly or indirectly owned 50% or more by such persons are also subject to these restrictions.

Authorities claimed the sanctions were due to Tornado Cash being used to launder funds stolen by hackers in several high-profile incidents, including:

• The Harmony hack (about $96 million stolen)
• The Ronin blockchain compromise, closely tied to the popular NFT game Axie Infinity (over $600 million stolen, with $455 million laundered through the mixer)
• About $7.8 million from the recent Nomad bridge hack

Other criminal groups allegedly used the mixer to obscure stolen funds after attacks on platforms like Audius, Beanstalk, Uniswap, and the Arbix Finance exit scam.

Later, it was reported that one of the suspected Tornado Cash developers was arrested in Amsterdam, accused of being involved with the mixer and “facilitating the concealment of criminal financial flows and money laundering.”

Crypto Community Reacts and Coinbase’s Position

The sanctions against Tornado Cash were met with strong criticism from the global crypto community, as many regular users relied on the mixer to enhance the privacy of their Ethereum transactions. The removal of Tornado Cash’s source code from GitHub caused panic among developers, who voiced concerns about a “chilling effect on innovation.”

In a blog post, Coinbase CEO and co-founder Brian Armstrong emphasized that not all Tornado Cash users were criminals. Many people used the mixer for anonymous donations, to protect their safety during transactions, and to keep their personal affairs private. Armstrong argued that blockchain transparency, which allows for auditing and verification, is not suitable for privacy, and that Tornado Cash serves as an important tool to help users maintain confidentiality.

“Developers are now worried they could be held liable for things they have no control over. Instead of encouraging innovation, these fears and uncertainties have the opposite effect—making developers question whether they’re putting themselves at risk by moving the industry forward,” Armstrong wrote.

The Lawsuit and Coinbase’s Support

Previously, a lawsuit was filed in Texas against the U.S. Department of the Treasury by six individuals whose funds were blocked due to the sanctions on Tornado Cash. The plaintiffs are seeking to have the sanctions lifted, to regain access to their funds, and to restore a tool that helps users maintain privacy.

“Tornado Cash is not a person or organization. It is a decentralized, open-source project that restores some privacy for Ethereum users,” the lawsuit states.

Coinbase has announced it is ready to fund the legal proceedings and fully supports the plaintiffs. The exchange’s leadership believes that U.S. authorities are overstepping by sanctioning open-source privacy technology rather than targeting actual wrongdoers.

“By acting against Tornado Cash, OFAC did not target bad actors or property controlled by them. Instead, OFAC took the unprecedented step of sanctioning an open-source technology—a tool lawfully used by many innocent people, as well as, possibly, some bad actors,” Coinbase’s official statement reads. “At Coinbase, we have fought illegal activity from the start, and while we fully support the Treasury’s efforts to fight crime, we also believe these actions harm innocent people and threaten the future of DeFi and web3.”