Coinbase’s Legal Chief Criticizes Treasury’s Tornado Cash Sanctions Stance

Coinbase’s Chief Legal Officer, Paul Grewal, has criticized the U.S. Treasury Department for disregarding a recent court ruling that requires the removal of Tornado Cash from the sanctions list. The controversy stems from the Treasury’s application of sanctions laws to immutable smart contracts, which the Fifth Circuit Court of Appeals ruled do not qualify as property under U.S. sanctions laws.

Grewal’s criticism comes in response to the Treasury’s handling of a Fifth Circuit decision, which found that Tornado Cash’s immutable smart contracts do not fall under the definition of property as outlined in the International Emergency Economic Powers Act (IEEPA). This ruling mandates that Tornado Cash be removed from the Treasury’s Specially Designated Nationals and Blocked Persons (SDN) list. Despite this, Treasury officials have stated that they will proceed with delisting but have requested additional time to do so. They also clarified that the ruling only applies to immutable smart contracts and does not affect the broader designation of Tornado Cash as an entity subject to sanctions.

The Treasury’s stance has been met with criticism from Grewal, who argues that the department is ignoring Congress’ directives and substituting its own interpretation of the law. Grewal contends that the Treasury’s response is insufficient and suggests that the agency has not learned from the court’s decision. He further stated that Coinbase would be filing a reply to reinforce the court’s findings and challenge the Treasury’s approach.

The legal battle over Tornado Cash is ongoing, with developers and co-founders facing separate legal troubles. Alexey Pertsev, the developer convicted in the Netherlands for laundering funds through the platform, has been released under electronic monitoring as he prepares his appeal. His case has gained traction after the U.S. court’s ruling supported the argument that punishing developers for open-source code misuse is a dangerous precedent. Meanwhile, Tornado Cash co-founders Roman Storm and Roman Semenov face separate legal troubles in the U.S., with Storm set for trial in September and Semenov facing charges related to his role in the platform.

The outcome of these legal battles could set a major precedent for the crypto industry, particularly in how digital assets and smart contracts are defined and regulated. The controversy invites a review of oversight frameworks and questions how digital assets and smart contracts are defined today. The Treasury’s strict oversight approach, favoring control over embracing blockchain’s built-in transparency, risks stifling innovation before it can fully develop. Critics argue that while the government targets Tornado Cash to stop criminals, 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.