Coinbase has said that it will pay plaintiffs’ legal fees in a lawsuit that asserts the Department of Treasury overstepped its authority by sanctioning Tornado Cash, a mixing service that the government has accused of facilitating North Korean money laundering.
Coinbase is funding a lawsuit against the United States Department of Treasury, filed by users of the recently sanctioned cryptocurrency mixing platform Tornado Cash.
According to CNBC, the six plaintiffs in the lawsuit include Coinbase employees as well as Tornado Cash users.
CNBC notes that mixing services like Tornado Cash are used to conceal and obfuscate online cryptocurrency transactions, which—while anonymous—are still easily traceable by law enforcement.
The Treasury Department had earlier levied sanctions against Tornado Cash after finding that the platform may have been used by North Korean hackers and cyber-criminals to launder more than $7 billion in cryptocurrencies.
However, mixing services also have legitimate uses: one of the plaintiffs, writes CNBC, used Tornado Cash to anonymize his donations to the Ukrainian armed forces, while another had concerns about his family’s financial security.
“Each is an American who simply wants to engage in entirely lawful private activity,” the lawsuit states.
The sanctions, says CNBC, were an unprecedented move by the Treasury Department to blacklist an open-source software.
Cryptocurrency enthusiasts have since derided the agency’s move, saying that it could adversely affect the technology industry in unexpected ways.
Coinbase’s chief legal officer, Paul Grewal, told CNBC that his company is funding the lawsuit because the federal government appears to have overstepped its regulatory authorities.
“We saw this as a much larger problem,” Grewal said. “It sets a dangerous precedent—if this code can be designated without any limits imposed by law, any technology, any tool, any system could be fair game.”
Grewal likened the Treasury Department’s sanctions to a scenario in which police are chasing criminals down a highway.
“We wouldn’t ban all use of that highway,” he said, adding that this is the first time Coinbase has financially supported an external lawsuit.
Coinbase, said Grewal, plans to pay the plaintiffs’ legal fees, as well as other costs associated with pursuing the claim in federal court.
“We have advocated for regulatory reform across Washington and that work will continue,” Grewal said. “We can continue to cooperate and partner with the agencies that are being challenged in this instance, because this is not about questioning anyone’s good faith, but it is about assuring that the rule of law applies.”
As LegalReader.com reported late last month, Coinbase is currently the subject of an ongoing S.E.C. probe, which is investigating allegations that some cryptocurrencies traded on Coinbase could be considered unregistered securities.