Van Loon plaintiffs to argue case against U.S. Treasury over tornado cash penalties before 5th Circuit

In a post on September 1, X, Kannon Shanmugam, an attorney representing Joseph Van Loon and several others in a lawsuit against the US Treasury, hinted that he would present arguments to 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’ve done.”

Threat to the First Amendment

Van Loon and his fellow plaintiffs sued the revenue department in September 2023, arguing that it had exceeded its authority when it added Tornado Cash to its list of Specially Designated Nationals (SDNs).

The crypto mixer suffered its fate after allegations of involvement in the laundering of large sums of illicit funds. Authorities claimed that criminals, including the Lazarus group linked to North Korea, had laundered more than $7 billion in ill-gotten crypto through the platform since its founding in 2019.

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

In its brief, the EFF argued that the government’s decision to sanction 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, particularly in the way it enforces sanctions on projects involving open source code.

Case previously dismissed by the Court

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

While the court acknowledged the concerns, it ultimately concluded that the government did not overreach in its choice.

However, the decision offered some reassurance to the coding community. It drew a clear line between the use of code for financial transactions and the broader activities of code development and analysis.

The ruling suggested that coders who engage with the crypto mixer outside of executing transactions should not be affected by the penalties, a point that may ease concerns within the developer community.

Despite this, the EFF and other digital rights advocates remain concerned about the broader implications of the case. They have pledged to continue monitoring the situation, emphasizing the need for vigilance to protect coder rights against potential government overreach.

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