US appeals court says Treasury 'overstepped' authority in Tornado Cash sanctions

Quick Take

  • A U.S. appeals court ruled on Tuesday that OFAC exceeded its authority by sanctioning Tornado Cash, a crypto mixer. 
  • The court reversed the district court decision, arguing that Tornado Cash’s smart contracts are not “property” and therefore cannot be sanctioned.
  • Coinbase’s Paul Grewal called the ruling a “historic win” for crypto.

A U.S. Federal Appeals court ruled on Tuesday that the Treasury Department’s Office of Foreign Assets Control (OFAC) overstepped its authority in sanctioning cryptocurrency mixer Tornado Cash, reversing a lower court decision.

“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,” the Fifth Circuit Appeals Court three-judge panel said.

The ruling noted that even with the assessment of OFAC’s broader definition of “any property,” the crypto-mixing service provider remains beyond regulatory reach, as its smart contracts are neither ownable nor traditional contracts or services.

OFAC designated Tornado Cash as a sanctioned entity in August 2022, barring people in the U.S. and firms looking to operate in the U.S. from engaging in financial interactions with it. The agency also linked Tornado Cash to North Korea’s nuclear weapons program. 

Upon the news, the price of Tornado Cash’s governance token, TORN, surged from around $3.6 to a high of nearly $35, an increase of about 870%. It is now trading at $16.7, according to CoinGecko.

Six plaintiffs vs. Treasury

The Tuesday ruling comes after Tornado Cash user Joseph Van Loon and five other plaintiffs sued the Treasury, Secretary Janet Yellen, OFAC and OFAC Director Andrea Gacki in 2022. The six plaintiffs argued that the sanction was an overreach as Tornado Cash is not a person nor an entity but a software.

In August last year, a district court judge sided with the Treasury, determining that Tornado Cash was more than just software as the judge took into account the involvement of its founders, developers and a decentralized autonomous organization in governing the platform. In the appeal, the plaintiffs maintained the same principal argument.

The appeals court ruling pointed out that even with OFAC’s sanctions, Tornado Cash remains accessible to “anyone with an internet connection.”  

“A good win,” Bill Hughes, senior counsel at Consensys, wrote on X. “One which the Supreme Court would be unlikely to reverse.”

“This is a historic win for crypto and all who cares about defending liberty,” Paul Grewal, chief legal officer of Coinbase, said in a post on X. Coinbase helped back the lawsuit against the Treasury, with several employees of the exchange filing suit to roll back the sanctions on Tornado Cash.


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About Author

Danny Park is an East Asia reporter at The Block writing on topics including Web3 developments and crypto regulations in the region. He was formerly a reporter at Forkast.News, where he actively covered the downfall of Terra-Luna and FTX. Based in Seoul, Danny has previously produced written and video content for media companies in Korea, Hong Kong and China. He holds a Bachelor of Journalism and Business Marketing from the University of Hong Kong.

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