Ruling on Sanctions of Tornado Cash by U.S. Court of Appeals
The U.S. Fifth Circuit Court of Appeals recently made a ruling regarding the sanctions imposed by the U.S. Treasury Department on the cryptocurrency mixer Tornado Cash in 2022. The court concluded that the Treasury Department exceeded its legal authority in sanctioning Tornado Cash.
The main issue at the center of the court’s decision was whether Tornado Cash, a tool used to anonymize cryptocurrency transactions, qualifies as « property » under the International Emergency Economic Powers Act (IEEPA). The court determined that Tornado Cash’s immutable smart contracts, which are automated and self-executing lines of code, do not fit this definition. Judge Don Willett emphasized that the IEEPA grants the Treasury Department the power to sanction property, not technology.
The Treasury Department’s Office of Foreign Assets Control (OFAC) had imposed sanctions on Tornado Cash in August 2022, citing its involvement in laundering over $7 billion in cryptocurrency, including funds allegedly stolen by North Korea’s Lazarus Group.
As a result of the sanctions, the use of Tornado Cash was significantly limited, leading to a sharp decline in activity.
Legal Challenge and Outcome
Six users of Tornado Cash, supported by Coinbase, challenged these sanctions, arguing that the smart contracts underlying Tornado Cash were not owned or controlled by any entity and therefore should not be subject to OFAC’s sanctions list. The court agreed with this argument, stating that OFAC had overstepped its legal boundaries.
Coinbase’s chief legal officer, Paul Grewal, praised the ruling, highlighting the importance of privacy in such cases.
Despite this legal victory, some individuals associated with the development of Tornado Cash continue to face legal issues. For example, a developer linked to the platform was recently sentenced to prison by Dutch authorities for money laundering activities.
The Fifth Circuit’s decision overturns a previous ruling by a federal judge, and the case will now proceed to further proceedings in federal court.
Source : cyberscoop.com