A US appeals court has ruled that Treasury Department sanctions against crypto mixer Tornado Cash were unlawful and an overstep of authority.
In 2022, the Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash – which allows users to obfuscate and anonymize their crypto transactions on the Ethereum (ETH) network – over allegations that it allowed North Korean agents to launder stolen money.
The developers have since been targeted by lengthy legal proceedings and the threat of jail time.
Now, a New Orleans-based U.S. Court of Appeals for the Fifth Circuit led by Judge Don Willett wrote that OFAC’s sanctions failed to properly define “property” in its statute against the agency.
Judge Willet says that under the International Emergency Economic Powers Act, the president has the right to “block any property in which another country or a national thereof has any interest.”
However, Willet says that if the definition of “property” is something that “can be owned,” then Tornado Cash and its immutable smart contracts cannot qualify as such, making the sanctions illegal.
The judge also noted that since Tornado Cash’s smart contracts are “immutable and undeletable,” they remain available for anyone – including North Korean violators – to continue using despite sanctions.
Willet says,
“More importantly, Tornado Cash, as defined by OFAC, does not own the services offered by the immutable smart contracts. A homeowner may own the right to waste removal services and a client may own the right to legal services performed by an attorney, but neither the homeowner nor the client owns the person performing the waste removal services or the attorney – and that is with good reason. Likewise, Tornado Cash as an “entity” does not own the immutable smart contracts, apart from the rights or benefits of the services provided by the immutable smart contracts.
Contrary to the ministry’s arguments, immutable smart contracts are not services. So even considering OFAC’s legal definitions, the immutable smart contracts are not property because they are not property, not contracts, and not services.”
TORN, Tornado Cash’s utility token, rose nearly 900% on the ruling.
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