Coinbase Chief Legal Officer Paul Grewal has criticized the U.S. Department of Treasury for failing to comply with a court ruling related to the sanctions placed on Tornado Cash. His statements come after the Treasury indicated its intention to defy parts of a Fifth Circuit Court decision that challenged the legality of the sanctions.
US Treasury’s Response to the Court Ruling
The Fifth Circuit Court of Appeals recently ruled that the action by the U.S. Treasury Department was unlawful as it put Tornado Cash on the Specially Designated Nationals (SDN) list. The court noted that Tornado Cash’s smart contract was non-erasable, so it did not constitute “property” under the International Emergency Economic Powers Act (IEEPA).
However, the Treasury has expressed willingness not to abide to the order of the court fully, but rather wants to suggest for remand for the proceedings.
In a sequence of tweets, Paul Grewal criticized the Treasury by stating that he was disappointed by its decision. He stated that though the court has dismissed the arrangement through which the Treasury listed Tornado Cash, that the Treasury is still looking to partially delist the entity.
“They say trust us,” Grewal said, referring to the Treasury’s assurance that it will abide by the ruling on the grounds that doing so may compromise national security. Grewal stated that the Treasury exceeds its authority erasing the Congress direction thus reviving the problems that led to a court case in the first place.
Court Decision on Tornado Cash
The Fifth Circuit came to the decision in December 2024 to resolve whether Tornado Cash’s smart contracts are properties that are prohibited from U.S. sanctions. The court further held that immutable smart contracts could not be considered as property under IEEPA.
It separated them from changeable smart contracts which could be managed and employed for unlawful purposes. Thus, the court did not question the Treasury’s ability to sanction Tornado Cash as an entity but addressed its treatment of the smart contracts only.
The ruling was seen as a significant blow to the Treasury’s case. However, the court did not provide a broad ruling on the legality of the Treasury’s decision to sanction Tornado Cash as a whole. Instead, it stated that these immutable contracts did not meet the definition of property under IEEPA and could not be blocked as part of the sanctions process.
Treasury’s Proposed Action Moving Forward
Despite the court ruling, the U.S. Treasury is proceeding cautiously. The agency has stated that it plans to remand the issue to the Department of the Treasury and the Office of Foreign Assets Control (OFAC) for further review. The Treasury has also indicated that it will begin the process of removing Tornado Cash from the SDN list, although no specific timeline has been provided.
Grewal has voiced concerns about the Treasury’s proposed approach. He noted that rather than fully comply with the court’s decision, the Treasury appeared to be looking for ways to maintain sanctions on Tornado Cash. This, according to Grewal, is a continuation of the same actions that led to the legal challenge in the first place.
However, the plaintiffs in the case, including Coinbase, plan to file a reply to clarify their position and ensure the Treasury complies with the court’s decision.
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