Last updated:
Crypto Reporter
Shalini Nagarajan
Crypto Reporter
Shalini Nagarajan
Share
Why Trust Cryptonews
A federal appeals court on Tuesday handed a major win to the crypto sector by overturning the US Treasury’s sanctions on crypto mixer Tornado Cash.
The court declared that privacy tools like Tornado Cash, built on the Ethereum blockchain, are exempt from Treasury Department sanctions.
Moreover, the court determined that the government lacked the appropriate mechanisms to classify the underlying technology of the service as a sanctioned entity even after a North Korean hacking group used it to launder over $455m.
On Tuesday, a three-judge panel from the 5th US Circuit Court of Appeals in New Orleans sided with six Tornado Cash users. The panel decided that software used to obscure digital asset ownership is not covered by US sanction laws. However, the ruling does not protect the individuals and groups who misuse it.
Governance token TORN surged 435% after the ruling, trading around $19.06 as of 11:00 pm ET.
Judge Declares Tornado Cash Smart Contracts Are Not Foreign ‘Property,’ Overturning Sanctions
The decision resolves a heated debate over the government’s power to sanction technology tied to criminal activities. It overturns an August district court ruling that supported the government’s stance against the “notorious” crypto-mixing service.
Circuit Judge Don Willett recognized the government’s concerns about foreign entities laundering money through the software. However, he explained that federal law allows the Treasury to target property, not the software itself.
“Perhaps Congress will update (the law), enacted during the Carter Administration, to target modern technologies like crypto-mixing software,” Willett said. “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 they cannot be blocked.”
Tornado Cash Usage Plummeted After Sanctions, But 2024 Marks Recovery
In 2022, the US Treasury’s OFAC sanctioned Tornado Cash, citing its role in enabling anonymous cryptocurrency transactions. The agency acted after Tornado Cash facilitated the laundering of over $7b in virtual currency since 2019.
The sanctions targeted Tornado Cash for failing to implement strong controls against misuse by cybercriminals. Despite its public focus on privacy, the platform was repeatedly used to launder cybercrime proceeds.
Tornado Cash’s usage plummeted after U.S. sanctions took effect. Monthly deposits dropped over 90%, highlighting the impact of sanctions that barred US persons from using the service and blacklisted related Ethereum addresses, even on decentralized platforms.
Yet, in 2024, Tornado Cash experienced a major revival. Despite legal challenges, regulatory scrutiny and the arrest of developer Alexey Pertsev, activity surged. Blockchain analytics firm Flipside Crypto reported that the service processed over $1.8b in deposits during the first half of the year.
Coinbase’s legal head, Paul Grewal, hailed the victory, declaring it a “historic win” for crypto and for everyone dedicated to safeguarding liberty.
