Coinbase CLO Criticizes U.S. Treasury for Ignoring Court Ruling on Tornado Cash Delisting

Key Takeaways:

• The U.S. Treasury’s stance favours strict oversight rather than embracing blockchain’s built-in transparency, risking innovation before it can fully develop.
• While the government targets Tornado Cash to stop criminals like the Lazarus Group, critics argue that traditional banks are still widely used for money laundering.
• If working on open-source projects could lead to criminal charges, developers may think twice before building new blockchain tools—driving creativity into the shadows.

Coinbase’s Chief Legal Officer Paul Grewal criticized the U.S. Treasury Department on Tuesday for disregarding a Fifth Circuit ruling requiring Tornado Cash’s removal from the sanctions list, citing the government’s incorrect application of sanctions laws to immutable smart contracts.

Grewal’s remarks, posted on X, come in response to the government’s handling of a recent Fifth Circuit decision, which found that Tornado Cash’s immutable smart contracts do not qualify as property under U.S. sanctions laws.

In a post on X, Grewal argued that the Treasury is ignoring Congress’ directives and substituting its own interpretation of the law despite a decision from the Fifth Circuit Court of Appeals.

We now know why @USTreasury was so quiet yesterday. It turns out that the district court's electronic docket was down. Fine– these things happen. Not so fine–once again they want to ignore Congress' explicit instructions and substitute it's own view of the law on how to… pic.twitter.com/riCadgFMxo

His comments follow a ruling by the U.S. Court of Appeals for the Fifth Circuit, which found that Tornado Cash’s immutable smart contracts do not qualify as “property” under the International Emergency Economic Powers Act (IEEPA).

The court determined that this classification meant Tornado Cash must be removed from the Treasury’s Specially Designated Nationals and Blocked Persons (SDN) list.

Despite the court’s decision, Treasury officials stated in court documents that they would proceed with delisting Tornado Cash but requested additional time to do so.

The department also mentioned that the ruling only applied to immutable smart contracts and did not affect the broader designation of Tornado Cash as an entity subject to sanctions.

“In holding that the immutable smart contracts are not ‘property’ under IEEPA, the Fifth Circuit repeatedly distinguished them from the mutable smart contracts that also play a role in the Tornado Cash mixing service,” the court document stated.

The court further noted that the decision did not challenge the Treasury’s classification of Tornado Cash as an entity.

The Treasury argued that removing Tornado Cash from the SDN list without further review could have serious national security implications.

Officials cited concerns over cryptocurrency mixers being used to launder funds tied to cybercriminals, including North Korea’s Lazarus Group.

“More than 65 percent of North Korea’s dirty crypto went through mixers in 2021,” the department stated, adding that these illicit funds are used to finance weapons programs.

Grewal, however, contended that the Treasury’s response was insufficient and suggested that the agency had not learned from the court’s decision.

“They say: ‘trust us’ to do the right thing based on unspecified ‘national security concerns.’ So they effectively have learned nothing,” he said.

He added that Coinbase would be filing a reply to reinforce the court’s findings and challenge the Treasury’s approach.

The legal fight over Tornado Cash is far from over. Despite a recent U.S. appeals court ruling that overturned sanctions against the protocol, the U.S. Treasury is pushing back, signaling more legal battles ahead.

Meanwhile, Alexey Pertsev, the developer convicted in the Netherlands for laundering $1.2 billion through the platform, has been released under electronic monitoring as he prepares his appeal.

Dear Friends, on Friday 7 February at 10 am I will be free! It is not real freedom, but it is better than prison. Today, a Dutch court suspended my pretrial detention under the condition of electronic monitoring. This will give me a chance to work on my appeal and fight for…

His case gained traction after the U.S. court’s ruling supported the argument that punishing developers for open-source code misuse is a dangerous ruling.

While Pertsev fights for his freedom, Tornado Cash co-founders Roman Storm and Roman Semenov face separate legal troubles in the U.S. Storm, set for trial in September, has filed a motion to dismiss charges, arguing that Tornado Cash isn’t a financial institution.

However, prosecutors maintain that his role in the platform makes him responsible.

With key court battles ahead, Tornado Cash’s legal fate could set a major precedent for the crypto industry.

Tornado Cash’s case remains ongoing, with continued support from the crypto community, including Coinbase’s Grewal.

No, the Fifth Circuit ruled that immutable smart contracts are not property under U.S. sanctions law. It challenges the traditional notions of ownership in decentralized systems.

This can be both, as the case resulted from the tension between preserving user privacy through tools like mixers and government efforts to control financial systems for security reasons.

The Treasury cites national security concerns. They argue that crypto mixers like Tornado Cash are used to launder money tied to cybercriminals, including North Korea’s Lazarus Group.

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