A big milestone in the legal battle surrounding Tornado Cash was reached when a United States appeals court sided with the platform’s users, ruling against the Treasury’s sanctions on its smart contracts.
This development came as a three-judge panel from the Fifth Circuit Appeals Court determined that the Treasury’s actions overstepped its legal authority.
The ruling, issued on November 26, concluded that the smart contracts of Tornado Cash do not qualify as “property” under the International Emergency Economic Powers Act (IEEPA).
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Consequently, the court reversed an earlier decision by a lower court, granting partial summary judgment to the plaintiffs. In their opinion, the judges clarified that blocking the smart contracts under IEEPA was beyond the Treasury’s reach. They stated:
Until then, 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.
Bill Hughes, a legal expert at Consensys, highlighted the implications of the decision, noting that it prevents OFAC from sanctioning smart contracts.
However, he cautioned against assuming Tornado Cash is excused from scrutiny. He remarked:
This does NOT mean that the rest of Tornado Cash is out of bounds for Treasury/OFAC too. The issue was about smart contracts with no admin key.
The case originated in August 2022, when the Treasury accused Tornado Cash of facilitating the laundering of over $7 billion in cryptocurrency since its launch in 2019.
In response, six users, headed by Joseph Van Loon and supported by Coinbase
$4.89B
, filed a lawsuit challenging the Treasury’s actions. They claimed that legal boundaries were crossed by adding 44 Tornado Cash smart contract identifiers to the Specially Designated Nationals (SDN) list.
Initially, a Texas federal court upheld the Treasury’s sanctions, classifying Tornado Cash as an entity subject to OFAC regulations. However, this latest appeals court decision overturns that judgment, directing that the sanctioned smart contracts be removed from the SDN list.
Meanwhile, Tornado Cash’s native token, TORN
$12.45
, increased by 326.90% and hit a market cap of $65 million following the announcement.
While the Tornado Cash ruling marks a critical win for privacy advocates, the legal sector for crypto remains turbulent. The SEC recently made headlines with huge fines linked to Terraform Labs. What led to this $8.2 billion settlement? Read the full story.
Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.Aaron is the go-to person for everything and anything related to digital currencies. With a huge passion for blockchain & Web3 education, Aaron strives to transform the space as we know it, and make it more approachable to complete beginners.Aaron has been quoted by multiple established outlets, and is a published author himself. Even during his free time, he enjoys researching the market trends, and looking for the next supernova.
