Coinbase-backed lawsuit challenged Treasury’s Tornado Cash sanctions

Six Tornado Cash users filed a federal lawsuit on September 8, 2022, challenging the U.S. Treasury Department’s decision to place the Ethereum privacy protocol on the Specially Designated Nationals and Blocked Persons List. The complaint, filed in the U.S. District Court for the Western District of Texas as *Van Loon v. Department of the Treasury*, turned a month-old sanctions action into a direct test of how far U.S. emergency-economic powers could reach into autonomous blockchain software.

Coinbase separately announced on September 8 that it was financing the case. That support gave the challenge institutional weight: a large regulated U.S. crypto company was not merely criticizing policy but underwriting litigation over whether open-source smart contracts could be treated as sanctionable property.

What the plaintiffs asked the court to decide

The six plaintiffs were Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. Their 20-page complaint named the Treasury Department, the Office of Foreign Assets Control, Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki as defendants in their official capacities.

The plaintiffs alleged that OFAC exceeded authority granted under the International Emergency Economic Powers Act because Tornado Cash was not a foreign country, foreign national or person, and because the protocol was not property in which a foreign party held an interest. They also brought First Amendment and Fifth Amendment claims through the Administrative Procedure Act.

Those were allegations, not findings. No court had ruled on the merits on September 8. The requested relief included an order setting aside the designation and a permanent injunction against its enforcement.

The complaint described Tornado Cash pools as smart contracts that let a user deposit ether or another Ethereum-based asset from one address and later withdraw the same asset to a different address using a secret key. That mechanism broke the public link between the depositing and withdrawing addresses, giving legitimate users financial privacy while also creating an avenue for illicit actors to obscure flows.

Treasury’s sanctions case

OFAC designated Tornado Cash on August 8, 2022. Treasury said the mixer had been used to launder more than $7 billion in virtual currency since its creation in 2019. The agency attributed more than $455 million to funds stolen by the North Korean state-sponsored Lazarus Group, more than $96 million to proceeds from the June 24, 2022 Harmony bridge theft, and at least $7.8 million to the August 2, 2022 Nomad theft.

Those figures were Treasury’s contemporaneous claims. Its press release did not provide a transaction-level dataset or methodology, so they should not be read as an independently audited measure of exclusively criminal volume. Treasury’s stated rationale was that Tornado Cash had materially assisted cyber-enabled activity and had failed to impose effective controls against repeated laundering.

The designation blocked property and interests in property of the named entity within U.S. jurisdiction and generally prohibited U.S. persons from transactions involving blocked property unless OFAC authorized or exempted them. The lawsuit did not dispute the government’s interest in stopping cybercrime; it disputed the chosen legal target and the scope of OFAC’s authority.

Why the filing mattered

The case exposed a structural problem for digital-asset regulation in 2022. Sanctions law was built to constrain people, organizations and their property. Immutable smart contracts complicated each category because deployed code could continue operating without a conventional intermediary capable of screening users or switching the system off.

For developers, exchanges and compliance teams, the immediate issue was therefore larger than one mixer. If publishing or interacting with autonomous code could be swept into an entity-level designation, privacy software and decentralized-finance interfaces faced uncertain legal boundaries. Conversely, excluding such systems from sanctions authority could leave a practical enforcement gap when state-backed hackers used them.

As of September 8, 2022, the verified development was the filing of a complaint and Coinbase’s commitment to fund it—not a victory for either side. The significance lay in moving the dispute from policy argument to judicial review, where statutory definitions, constitutional claims and the technical characteristics of smart contracts would have to be tested against one another.