A three-judge panel has ruled that the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its authority when it sanctioned Tornado Cash, a decentralized crypto mixer.
The panel noted that sanctions against the crypto mixer’s immutable smart contracts were unlawful, overturning a lower court’s decision and granting Tornado Cash users partial summary judgment.
Tornado Cash Freed from OFAC’s Shackles
Tornado Cash is an open-source software project that provides privacy protection for Ethereum’s users. The panel stated that although the Treasury possesses the authority to target property, Tornado Cash’s smart contracts do not fall under the property definition in the International Emergency Economic Powers Act (IEEPA) because they cannot be owned or managed.
“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 judges said.
The International Emergency Economic Powers Act (IEEPA), established in 1977, is a US federal statute granting the President the power to oversee and restrict specific financial activities. It also targets modern technologies such as crypto mixers.
Two-Year-Long Sanction
In August 2022, the US Treasury sanctioned Tornado Cash, claiming it had facilitated the laundering of over $7 billion in crypto since its launch in 2019. By targeting Tornado Cash, OFAC effectively prohibited US individuals and entities from using the protocol’s smart contracts.
A few weeks afterward, six Tornado Cash users, spearheaded by Joseph Van Loon and backed by Coinbase, filed a lawsuit against the Treasury, asserting that the inclusion of 44 Tornado Cash smart contract addresses on the Specially Designated Nationals (SDN) list was unlawful.
Crypto advocacy group Coin Center also argued that the sanctions were overly broad and unjustly restricted lawful users from leveraging Tornado Cash’s privacy features.
Nearly a year later, a federal judge in Texas ruled in favor of the US Treasury, concluding that Tornado Cash qualified as an entity subject to designation under OFAC regulations.
Meanwhile, since the news broke, Tornado cash (TORN) has surged, up 269.29% in the last 24 hours. At the time of publication, the asset is trading at over $13.
