Appeals Court Rules U.S. Treasury Overstepped Authority in Tornado Cash Sanctions

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) acted beyond its legal authority when it imposed sanctions on cryptocurrency mixer Tornado Cash in 2022, a U.S. appeals court ruled today.

The New Orleans-based 5th U.S. Circuit Court of Appeals determined that OFAC’s actions, which accused Tornado Cash of facilitating the laundering of over $7 billion for North Korean hackers and other cybercriminals, were not supported under federal law. The decision came after six Tornado Cash users, supported financially by cryptocurrency exchange Coinbase, filed a lawsuit challenging the sanctions.

Cryptocurrency mixers like Tornado Cash operate as anonymous software tools, enabling users to obscure the origins or ownership of digital assets. OFAC had blacklisted Tornado Cash under the International Emergency Economic Powers Act, arguing that the service was complicit in laundering funds from cybercrimes, including $455 million stolen by North Korea’s state-backed Lazarus Group.

Writing for the three-judge panel, U.S. Circuit Judge Don Willett stated that OFAC’s authority extends only to the regulation of property, which Tornado Cash’s immutable crypto-mixing smart contracts do not legally constitute.

According to Willett, Tornado Cash’s self-executing smart contracts—or mixers—are designed to increase user anonymity by pooling, shuffling, and redistributing cryptocurrency deposits from multiple users. These contracts, being immutable and unowned, cannot be controlled or altered, and therefore, cannot be defined as property under existing law.

“The real-world downsides of certain uncontrollable technology falling outside of OFAC’s sanctioning authority” are acknowledged, Willett wrote, but emphasized that it is Congress’s responsibility to amend the 1977 International Emergency Economic Powers Act to address contemporary technologies, rather than the court’s.

Judge Willett, a conservative appointed by former Republican President Donald Trump, emphasized the limits of OFAC’s regulatory scope in his opinion.

The Treasury Department has not commented on the ruling.

Coinbase’s Chief Legal Officer, Paul Grewal, celebrated the decision as “a historic win for crypto and all who care about defending liberty” in a post on X (formerly Twitter). Coinbase had argued that sanctioning an entire technology could hinder innovation and compromise privacy.

The ruling comes amid broader scrutiny of Tornado Cash’s operations. In May, Tornado Cash developer Alexey Pertsev was sentenced to five years and four months in a Dutch prison for money laundering. Additionally, federal prosecutors in New York charged Tornado Cash founders Roman Semenov and Roman Storm with money laundering and sanctions violations last year.

By fLEXI tEAM