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A US appeals court has overturned sanctions imposed by the Treasury Department on Tornado Cash, a crypto mixer that enables privacy in transactions.
The Fifth Circuit Court of Appeals ruled on 26 November 2024 that the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its authority by targeting Tornado Cash’s immutable smart contracts, granting its users a partial summary judgment.
The three-judge panel argued that Tornado Cash’s smart contracts are not “property” under the International Emergency Economic Powers Act (IEEPA).
Tornado Cash Contracts Cannot be Owned
The Tornado Cash contracts, which operate as immutable lines of privacy-focused code, cannot be owned or controlled by any individual or entity, making them ineligible for sanctions under the IEEPA.
“We hold that Tornado Cash’s immutable smart contracts are not the ‘property’ of a foreign national or entity,” the judges wrote. “They cannot be blocked under IEEPA, and OFAC overstepped its congressionally defined authority.”
The ruling reverses a previous decision by a Texas federal court, which had sided with the Treasury in declaring Tornado Cash as an entity subject to sanctions.
The decision marks a major victory for Tornado Cash users, who had been fighting the sanctions since they were imposed in August 2022.
The Treasury had sanctioned Tornado Cash, alleging it was used to launder over $7 billion in cryptocurrency since its launch in 2019.
In response, a group of six Tornado Cash users, supported by Coinbase, filed a lawsuit arguing that adding 44 of the platform’s smart contract addresses to the Specially Designated Nationals (SDN) list was unlawful. Advocacy group Coin Center later filed a separate suit challenging the sanctions.
While the court’s ruling removes these smart contracts from the sanctions list, legal experts note that the Treasury could still pursue other aspects of Tornado Cash.
Bill Hughes, a lawyer at ConsenSys, clarified that the judgment applies specifically to smart contracts without admin keys and does not exempt Tornado Cash’s broader operations from scrutiny.
BIG NEWS: Federal appeals court says Treasury overstepped its authority when sanctioning immutable smart contracts deployed by the @TornadoCash devs because they are NOT property of a foreign person or entity.
“The immutable smart contracts at issue in this appeal are not… pic.twitter.com/1tPhRPmgVE
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) November 26, 2024
Following the court’s decision, Coinbase’s Chief Legal Officer Paul Grewal announced that U.S. persons could once again use the privacy-focused protocol.
The news caused Tornado Cash’s native token, TORN, to surge by 866%, reaching a two-year high of $34.98.
Explore: Tornado Cash Co-Founder Trial: US Rejects 3 Charge Dismissal
Tornado Cash Regains Momentum
As reported, Tornado Cash experienced a resurgence in 2024 following a decline in activity prompted by sanctions imposed by the US government two years ago.
The protocol has witnessed an impressive influx of deposits, exceeding $1.8 billion in the first half of this year alone. The figure represents a 45% increase compared to deposits received in 2023, found blockchain analytics firm Flipside Crypto.
Mixing services like Tornado Cash’s are designed to uphold privacy, a fundamental principle within the decentralized realm of cryptocurrencies. These services pool funds from various transactions, making it more challenging to trace them back to their original source.
Explore: Tornado Cash Triumph: You Can’t Sanction Smart Contracts, Court Declares, TORN Rallies 1,300%
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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