Future Sanctions on Tornado Cash Remain Possible Despite US Treasury Lifting Restrictions, Warns Coinbase CLO

• The US Treasury recently lifted sanctions on Tornado Cash, but Coinbase’s Chief Legal Officer raises concerns about the potential for future sanctions.

• Paul Grewal cautions that while the sanctions have been lifted, legal precedents suggest they can be reinstated at any time.

• Grewal emphasizes the need for a court ruling to secure long-term protections for Tornado Cash against arbitrary future actions.

The US Treasury’s lifting of Tornado Cash sanctions raises important questions about the future, as Coinbase’s legal chief warns of possible reinstatements.

Paul Grewal Warns of Future Sanction Risks

The revocation of sanctions on Tornado Cash signals a significant shift in regulatory stance following extensive public scrutiny and legal challenges. Initially, the US Treasury accused Tornado Cash of enabling money laundering activities linked to North Korea. However, the legal pushback has led to the current decision to remove the restrictions.

Despite this positive development for Tornado Cash, Grewal highlights that the Treasury’s action is not a definitive safeguard. According to him, the Treasury maintains the authority to reinstate sanctions, reflecting a concerning pattern in regulatory approaches. He asserts that the legal framework does not guarantee Tornado Cash will remain free from renewed sanctions without a clear judicial ruling.

Grewal Advocates for Judicial Clarity

The underlying legal principles at play are crucial for the future of not only Tornado Cash but the broader cryptocurrency landscape as well. Grewal refers to established legal precedents, like the voluntary cessation doctrine, which argues that a defendant’s withdrawal from a contested practice does not moot existing claims. This suggests that even with current sanctions lifted, the risk of future actions by the Treasury remains.

He draws parallels with notable court cases to reinforce his argument. For instance, he cites FBI v. Fikre, where a court ruled that a plaintiff’s removal from a blacklist did not moot the case due to the lack of assurance against future listings. Such examples illustrate why a definitive ruling is necessary to ensure that Tornado Cash is not subject to arbitrary sanctions again.

Coinbase Legal Team Pushes for Final Ruling

In light of these concerns, Grewal calls on the district court to step in and provide clarity. He argues that the court should grant a motion for partial summary judgment that would invalidate the previous designation of Tornado Cash as a sanctioned entity. This action is pivotal in safeguarding the future of Tornado Cash users and the integrity of the cryptocurrency ecosystem.

“The US Treasury’s chaotic response to the Fifth Circuit’s direction on Tornado Cash underscores the urgency for the district court to act. Granting the plaintiffs’ motion for partial summary judgment would be a critical move to affirm Tornado Cash’s legality,” Grewal stated emphatically.

The lifting of sanctions is seen as a boon for users and advocates of decentralization. However, the specter of renewed regulation looms large. Without a final judicial ruling, the legal standing of Tornado Cash remains precarious, and the implications may resonate across decentralized finance (DeFi) platforms and privacy protocols.

As the debate continues, voices from the crypto community emphasize the necessity of judicial intervention. Grewal and others urge for protective measures to be established to prevent the Treasury from exerting arbitrary authority over Tornado Cash and similar entities in the future.

Push for a clear judicial ruling in the Tornado Cash case. Source: Court filing

Conclusion

In summary, the removal of sanctions on Tornado Cash represents a pivotal moment for the cryptocurrency industry, but the implications are far from settled. The call for a definitive court ruling is not only about ensuring the legal status of Tornado Cash but also about preserving the freedoms associated with decentralized finance. As Grewal emphasizes, without strong judicial protections, the risk of arbitrary re-imposition of sanctions remains a significant concern for the future of crypto innovation.