Crypto Investors Sue US Treasury Department for Banning Crypto Platform, Tornado Cash

Recall that the fully decentralized noncustodial cryptocurrency tumbler that runs on Ethereum-enabled networks, Tornado cash was banned last month by the US government to prevent hacking and other cryptocurrency crimes.

Recently, a group of furious crypto investors sued the US Treasury Department to block government sanctions that ban Americans from Tornado Cash.

These investors filed a court case in federal court for the Western District of Texas, which is funded by cryptocurrency exchange Coinbase, accusing the US government of its increasingly stringent regulation of digital assets.

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The lawsuit argues that the Treasury Department exceeded its legal authority by prohibiting Tornado Cash, which violates their rights and impairs their ability to conduct free and private financial transactions.

Following these claims, the US Treasury Department did not immediately respond. The department previously announced last month that it had placed Tornado’s money on a list to prevent the hacking and money laundering the platform was known for.

The tumbler has been flagged as a money laundering platform, with rapidly growing incidents on Ethereum and Binance Smart Chain on a steady upward trend. It has been reported that much of the illicit funds lost their trail after passing through the blender.

According to a report by blockchain security platform SlowMist, 74.6% of stolen funds (or nearly 300,160 ETH) on the Ethereum network were transferred to the controversial cryptocurrency tumbler in the first half of 2022.

This prompted angry reactions from industry groups who argued that the crackdown would cut off access to a key tool to safeguard privacy.

However, the US Treasury Department has said that the so-called cryptocurrency mixer, Tornado Cash, is designed to make it harder for law enforcement officials and other observers to track crypto transactions.

He revealed that every time two people exchange digital currency, the transaction is recorded on a public ledger called blockchain, which anyone can analyze to track the movement of funds.

But when people funnel their cryptocurrency through the mixer, the cash flows are combined to disguise the origin of the money, making it a favorite tool for criminals to perpetuate crime.

This year, it was reported that a North Korean-backed hacking group used Tornado Cash to launder more than $455 million, according to the US Treasury Department. In total, according to the department, the service helped criminals launder $7 billion in virtual currency.

Crypto proponents have refuted these claims, stating that mixers are a neutral tool, which is often used by those who simply want to protect their privacy.

They argued that unlike some other crypto privacy services, Tornado Cash is not a traditional company run by an executive team. It is a set of “smart contracts” of pieces of code that operate independently of any entity.

“It is important that the distinction in law between people and code is respected,” said Paul Grewal, Chief Legal Officer of Coinbase. “If this disrespect is allowed, there could be all sorts of other ways laws are twisted and bent to apply to crypto in ways they shouldn’t be.”

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