Van Loon Plaintiffs to Argue Before Fifth Circuit in Case Against U.S. Treasury Over Tornado Cash Sanctions

In a September 1 article on X, Kannon Shanmugam, an attorney representing Joseph Van Loon and several others in a lawsuit against the U.S. Treasury, hinted that he would present arguments before the Fifth Circuit in the case.

In a show of support for the legal challenge, Coinbase Chief Legal Officer Paul Grewal responded to Shanmugam’s post, saying, “We appreciate all the work you have done.”

Threat to the First Amendment

Van Loon and his fellow plaintiffs sued the Department of Revenue in September 2023, arguing that it exceeded its authority by adding Tornado Cash to its list of Specially Designated Nationals (SDNs).

The cryptocurrency mixer suffered this fate following accusations of involvement in laundering huge sums of illicit money. Authorities claimed that criminals including the North Korea-linked Lazarus Group had laundered more than $7 billion in illegally acquired cryptocurrencies through the platform since its inception in 2019.

The lawsuit has drawn attention, particularly from digital rights advocates like the Electronic Frontier Foundation (EFF), which even submitted an amicus brief arguing that the government’s actions threaten the First Amendment rights of coders.

In its brief, the EFF argued that the government’s decision to approve an open source project without clear guidelines could have a chilling effect on the development of software and other digital tools.

They urged the court to require Treasury to strictly adhere to First Amendment protections, including in how it applies sanctions on projects involving open source code.

The court has already dismissed the case

A district court had previously dismissed the complaint, finding that the actions did not violate the First Amendment. The court clarified that the sanctions apply only to transactions involving Tornado Cash’s smart contracts and do not restrict development or discussion of the underlying open-source code unless it is used for transactions.

Although the court acknowledged these concerns, it ultimately concluded that the government had not overstepped its bounds in its choice.

The move, however, reassured the developer community. It established a clear distinction between the use of the code for financial transactions and broader code development and analysis activities.

The decision suggests that coders who interact with the crypto mixer outside of executing transactions should not be affected by the sanctions, a point that could ease concerns within the developer community.

Even so, the EFF and other digital rights advocates remain concerned about the broader implications of the case. They have pledged to continue monitoring the situation, stressing the need for vigilance to protect coders’ rights from potential government abuse.