Tornado Cash users appeal ruling in US Treasury's favor

By: Henry Felix

November 15, 2023 6:09 AM

The six plaintiffs, backed by crypto exchange Coinbase, have appealed the lower court's decision to uphold the U.S. Treasury's sanction of Tornado Cash.

After a judge upheld the United States Treasury Department's decision to put the cryptocurrency mixer Tornado Cash on its list of sanctioned businesses, a group of Tornado Cash users appealed the decision in federal court.

Attorneys for Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch claimed in a filing with the U.S. Court of Appeals for the Fifth Circuit on November 13 that the U.S. Treasury "stretched [its] authority beyond recognition" by approving Tornado Cash transactions. The filing was made in response to a ruling by a federal judge in Texas in August, who found that the crypto mixer was under the ambit of OFAC sanctions.

The filing from November 13 stated that the district judge erred in ruling that the department met three elements for a designation under the North Korea Act and the [International Emergency Economic Powers Act]. "The Department's action is beyond its statutory authority and in violation of the Administrative Procedure Act."

According to the plaintiffs, smart contracts under Tornado Cash listed in the action were "immutable and ownerless" and failed to fulfill the U.S. Treasury's regulatory definition of "property" liable to sanctions. The appeal also disputed the Treasury's definition of "interest," arguing that Tornado Cash had no "legal, equitable, or beneficial interest" in the smart contracts of its customers.

The six plaintiffs had originally filed their complaint in September 2022; thus, this was the next step in the judicial process. In August 2022, the Office of Foreign Assets Control of the U.S. Treasury added Tornado Cash to its list of Specially Designated Nationals, which incited anger and condemnation among many in the industry.

Paul Grewal, chief legal officer at Coinbase, expressed his support for the plaintiffs' efforts in an X (previously Twiter) thread on November 13. He hoped that the appellate court would give the filing serious consideration. Ever since Van Loon and the other plaintiffs filed their action in September 2022, the cryptocurrency exchange has been vocally on their side.

Coin Center, another crypto support group that sued the U.S. Treasury over Tornado Cash in October 2022, also lost its case in federal court in Florida. On November 6th, the group appealed to the United States Court of Appeals for the Eleventh Circuit.

The U.S. government has also filed criminal charges against alleged Tornado Cash participants. The owners, Roman Storm and Roman Semenov, were accused in August by the Justice Department of money laundering, sanctions breaches, and running an illegal money transfer business.

Storm was arrested in September and released after posting a $2 million bond and entering a not-guilty plea; Semenov was not in custody at the time of publication. In August of 2022, Dutch authorities arrested Alexey Pertsev, a co-founder of Tornado Cash, on similar money laundering charges. To await trial, he was given his freedom in April of 2023.