A federal court in Texas ruled Tuesday that the U.S. Treasury overstepped its authority by sanctioning decentralized crypto mixer Tornado Cash, crippling the government’s attempt to regulate the protocol.
This marks the second regulatory defeat for the Treasury. In November, the U.S. Fifth Circuit Court ruled that the Treasury overstepped its authority by sanctioning similar immutable smart contracts.
The U.S. District Court for the Western District of Texas ruled that Tornado Cash’s immutable smart contracts could not be classified as “property” under the International Emergency Economic Powers Act (IEEPA).
Fifth Circuit Rules OFAC Overstepped in Sanctioning Tornado Cash's Immutable Smart Contracts
The U.S. Fifth Circuit Court ruled Tuesday that the Treasury overstepped by sanctioning Tornado Cash’s immutable smart contracts, stating the autonomous software cannot be classified as property. The Fifth Circuit held that when smart contracts are immutable—meaning no entity can modify or control them—they cannot be classified as "property" subject to sanctions under existing law. The decision reverses a lower court ruling and marks a significant win for privacy advocates and blockchain develop...
“It is ordered and adjudged that the judgment of the district court is reversed, and the cause is remanded…,” the ruling states.
Following the ruling, Tornado Cash’s native token, TORN, has climbed past $25, an increase of over 200% by Wednesday morning, according to CoinGecko data. It has since settled to $19.78 at the time of writing.
“The immutable smart contracts at issue are not property because they are not capable of being owned,” the judgment stated, limiting the government’s ability to regulate open-source blockchain protocols.
The Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in August 2022, citing its alleged role in laundering $455 million in stolen crypto linked to notorious hackers North Korea’s Lazarus Group.
Feds Blacklist Tornado Cash, Ban Ethereum Mixing Tool in US
The U.S. Treasury Department today sanctioned Tornado Cash, an Ethereum coin mixing tool. In a Monday announcement, the body added the Tornado Cash website and a long list of Ethereum addresses to its Specially Designated Nationals list, banning American citizens from using the tool or transacting with these addresses. Tornado Cash is an app that lets users make private transactions on the Ethereum network. It does this by pooling together cryptocurrency deposited by many users and mixing them...
In Tuesday’s decision, the court flagged the limits of regulatory authority, noting that the IEEPA, a law granting the President economic powers during emergencies, was not intended to target neutral, open-source software.
Even with the sanctions in place, “those immutable smart contracts remain accessible to anyone with an internet connection,” the court added.
The case will now return to the district court for further proceedings based on the Texas court’s interpretation.
Tornado Cash, a coin mixer on the Ethereum blockchain, enables users to obscure transaction details by pooling funds.
While designed for privacy, the tool has also been vastly exploited by malicious actors.
OFAC added Tornado Cash and its associated addresses to the Specially Designated Nationals (SDN) list, prohibiting U.S. persons from interacting with it.
New York Judge Rules Tornado Cash Co-Founder Roman Storm Must Face Trial in Money Laundering Case
A U.S. district court judge ruled Thursday that the money laundering case against Roman Storm shall proceed, denying the Tornado Cash co-founder’s motion to dismiss the high-profile case. The ruling delivered by Judge Katherine Polk Failla in the Southern District of New York found that prosecutors plausibly charged Storm with conspiring to operate an unlicensed money transmitter, facilitating money laundering and sanctions evasion in operating the coin-mixing service. Notably, Failla’s ruling...
The court pointed out that such contracts, being autonomous and unchangeable, cannot be classified under existing laws as regulated assets.
But it’s not all smooth sailing for the crypto mixer. Just last September, a New York court refused to dismiss money laundering charges against co-founder Roman Storm.
Prosecutors alleged he conspired to operate an unlicensed money transmission business, enabling sanctions evasion and laundering through Tornado Cash.
The sanctions also led to the arrest of developer Alexey Pertsev, who remains jailed in Netherlands for allegedly laundering $1.2 billion via Tornado Cash.
Edited by Stacy Elliott.
