Court Blocks Treasury Overreach in Tornado Cash's Sanction

Tornado Cash Triumph: Court Blocks Treasury Overreach in Crypto Sanction

Written by Aaron S.,

Editor-In-Chief

Last Updated: November 27, 2024

Key Takeaways

A US appeals court ruled Tornado Cash's smart contracts aren't "property" under IEEPA, limiting Treasury's sanction powers;
The decision overturns a prior ruling, directing the removal of Tornado Cash smart contracts from the sanctions list;
Tornado Cash's token, TORN, surged by 326.90% after the legal victory.

A big milestone in the legal battle surrounding Tornado Cash was reached when a United States appeals court sided with the platform’s users, ruling against the Treasury's sanctions on its smart contracts.

This development came as a three-judge panel from the Fifth Circuit Appeals Court determined that the Treasury's actions overstepped its legal authority.

The ruling, issued on November 26, concluded that the smart contracts of Tornado Cash do not qualify as "property" under the International Emergency Economic Powers Act (IEEPA).

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Consequently, the court reversed an earlier decision by a lower court, granting partial summary judgment to the plaintiffs. In their opinion, the judges clarified that blocking the smart contracts under IEEPA was beyond the Treasury’s reach. They stated:

Until then, we hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.

Bill Hughes, a legal expert at Consensys, highlighted the implications of the decision, noting that it prevents OFAC from sanctioning smart contracts.

However, he cautioned against assuming Tornado Cash is excused from scrutiny. He remarked:

This does NOT mean that the rest of Tornado Cash is out of bounds for Treasury/OFAC too. The issue was about smart contracts with no admin key.

The case originated in August 2022, when the Treasury accused Tornado Cash of facilitating the laundering of over $7 billion in cryptocurrency since its launch in 2019.

In response, six users, headed by Joseph Van Loon and supported by Coinbase $4.19B , filed a lawsuit challenging the Treasury’s actions. They claimed that legal boundaries were crossed by adding 44 Tornado Cash smart contract identifiers to the Specially Designated Nationals (SDN) list.

Initially, a Texas federal court upheld the Treasury's sanctions, classifying Tornado Cash as an entity subject to OFAC regulations. However, this latest appeals court decision overturns that judgment, directing that the sanctioned smart contracts be removed from the SDN list.

Meanwhile, Tornado Cash’s native token, TORN TORN $10.19 , increased by 326.90% and hit a market cap of $65 million following the announcement.

While the Tornado Cash ruling marks a critical win for privacy advocates, the legal sector for crypto remains turbulent. The SEC recently made headlines with huge fines linked to Terraform Labs. What led to this $8.2 billion settlement? Read the full story.