Tornado Cash wins legal fight with U.S. Treasury
Tornado Cash beats U.S. sanctions in court ruling
A landmark decision by the 5th Circuit Court of Appeals has overturned sanctions imposed by the U.S. Treasury Department on Tornado Cash, a non-custodial, fully decentralized, open-source cryptocurrency mixer accused of facilitating illegal activities.
The court ruled that the software used by Tornado Cash to obscure ownership of digital assets does not qualify as “property” under U.S. law and is therefore not subject to sanctions, according to Bloomberg.
The dispute arose from the U.S. Treasury's 2022 designation of Tornado Cash as a sanctioned entity, citing its alleged role in laundering over $7 billion in digital assets. Among these transactions, $455 million were reportedly linked to the Lazarus Group, a hacking organization associated with North Korea. As part of the sanctions, 44 Ethereum wallet addresses associated with Tornado Cash were added to the Specially Designated Nationals (SDN) list, prompting legal challenges from Tornado Cash users with the support of the cryptocurrency exchange Coinbase.
Smart contracts and their legal status in the U.S.
In its ruling, the appellate court determined that the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its authority under the International Emergency Economic Powers Act (IEEPA). The panel of judges concluded that immutable smart contracts—fragments of code designed to execute transactions without the need for human control—are not owned or controlled by any foreign legal or natural person. Therefore, they cannot be classified as sanctionable property under IEEPA.
“While the government’s concerns about the misuse of cryptocurrencies are valid, federal law limits the Treasury’s actions to property that is tangible or controllable,” wrote Circuit Judge Don Willett in the decision. This ruling represents a turning point in the legal regulation of decentralized technologies, as privacy advocates and blockchain developers celebrate what they view as a victory for decentralized tools and user autonomy.
Implications and next steps in the Tornado Cash case
Despite Tornado Cash’s legal victory, the Treasury continues to emphasize the need for regulating cryptocurrency mixers, warning of their use by criminal entities. This decision overturns a prior ruling by a Texas federal judge in August 2023, which upheld the Treasury’s sanctions.
The outcome of this confrontation could have far-reaching implications as it highlights how governments approach the regulation of decentralized finance and privacy-focused technologies.
It is worth noting that the trial of Roman Storm, a Tornado Cash developer, has been postponed until April 2025.
