In a big legal win for the cryptocurrency industry, a U.S. appeals court has overturned sanctions imposed by the Treasury Department on popular cryptocurrency mixer, Tornado Cash, causing the price of the associated coin to zoom 430%.
What Happened: A three-judge panel from the Fifth Circuit Appeals Court in New Orleans on Tuesday concluded that the Office of Foreign Assets Control (OFAC) had exceeded its authority, reversing a lower court’s decision and granting a partial summary judgment in favor of Tornado Cash users.
The judges ruled that Tornado Cash’s immutable smart contracts do not qualify as property under the International Emergency Economic Powers Act (IEEPA)—a federal law that grants sweeping powers to the president to control economic transactions—as they cannot be owned or controlled.
“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,” Circuit Judge Don Willett wrote in the judgment.
The Treasury Department didn’t immediately return Benzinga’s request for comment.
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The ruling was cheered by influential names in the industry like Coinbase CEO Brian Armstrong and the company’s Chief Legal Officer Paul Grewal who described it as a “historic win for crypto.”
“Proud of this outcome. The courts ruled in our favor that the Treasury Department cannot sanction open-source code.
Hayden Adams, Founder of Uniswap Labs, the firm behind the leading decentralized exchange Uniswap UNI/USD, said, “Holy sh*t. Immutable smart contracts just beat the Treasury Department in court.”
Why It Matters: The ruling followed a turbulent period for Tornado Cash, which was blacklisted by the department in 2022, making it illegal for U.S. citizens, residents, and companies to use the platform.
In August 2023, the platform’s founders, Roman Storm and Roman Semenov, were indicted for allegedly laundering over $1 billion through the cryptocurrency mixer, including funds from the notorious North Korean cybercrime group, Lazarus Group.
Critics argued that Tornado Cash is software, not an individual and that the Treasury had overstepped its authority by sanctioning the mixing service. This sentiment was echoed by Vivek Ramaswamy, a prominent member of the incoming Donald Trump administration, who argued that penalizing an entire protocol was “illegal and unconstitutional.”
For the curious, a cryptocurrency tumbler, also known as a mixer, is a service that mixes cryptocurrency funds to make them harder to trace. The goal is to improve the anonymity of cryptocurrencies, especially Bitcoin BTC/USD, whose public ledgers are otherwise easily available.
Price Action: Following the ruling, the price of the associated token Tornado Cash TORN/USD exploded 430%, according to data from Benzinga Pro.
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