The US Fifth Circuit Court of Appeals has overturned sanctions and ruled in the favour of Tornado Cash. In a win for crypto companies worldwide and a positive shift towards crypto-friendly regulation, the court concluded that the Treasury Department’s Office of Foreign Assets Control (OFAC) exceeded its statutory authority under the International Emergency Economic Powers Act (IEEPA).
Judge Don Willett noted that while OFAC has valid concerns about unlawful activity, its jurisdiction is restricted to punishing “property,” not technology itself.
Following the ruling, US citizens can legally use Tornado cash. The market reacted positively to this and the company’s native token (TORN) surged by over 180% to $22.
Explore: Tornado Cash Triumph: You Can’t Sanction Smart Contracts, Court Declares, TORN Rallies 1,300%
The Controversial Sanctions
OFAC had blacklisted the company for its role in laundering virtual currency for malicious cyber actors. For example, a North Korea-linked hacking group that used Tornado Cash to launder the proceeds of cybercrimes.
However, it was noted that while Tornado has legitimate applications for enhancing privacy, it has also been exploited by malicious actors.
According to the court ruling, by adding Tornado Cash to the list of Specially Designated National and Blocked Persons (SDN), OFAC imposed an across-the-board prohibition against any dealings with Tornado Cash “property.” OFAC defined this to include open-source computer code known as “smart contracts.”
The sanctions targeted 38 Ethereum smart contract addresses associated with the platform. This effectively banned US entities from interacting with it.
District Court officially ordered to reverse sanctions against Tornado Cash pic.twitter.com/gmWRbphU15
— L0la L33tz (@L0laL33tz) January 22, 2025
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Tornado Cash Contracts Cannot be Owned
On 26 November 2024 too, the court had ruled that OFAC exceeded its authority by targeting the company’s immutable smart contracts, granting its users a partial summary judgment. The three-judge panel argued that the company’s smart contracts are not “property” 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.”
Following the court’s decision, Coinbase’s Chief Legal Officer Paul Grewal announced that US persons could once again use the privacy-focused protocol.
Last year, the news caused TORN, to surge by 866%, reaching a two-year high of $34.98.
Explore: Federal Court Overturns US Sanctions On Crypto Mixer Tornado Cash
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