The court said federal law only gives OFAC the authority to sanction property, and Tornado Cash’s smart contracts do not qualify as property.
A US federal appeals court has issued a ruling overturning the sanctions imposed by the US Treasury’s Office of Foreign Assets Control (OFAC) against decentralised crypto mixing service Tornado Cash two years ago.
The sanctions against Tornado Cash were imposed in August 2022 pursuant to the International Emergency Economic Powers Act (IEEPA), barring US persons from using the service and freezing all of its US assets.
Crypto mixing services work by pooling together cryptocurrency from multiple depositors and mixing it to obscure the trail of transactions that can be observed on public blockchain ledgers.
Publicly, Tornado Cash marketed itself as a tool for privacy, and tried to show that it is adding compliance features to its platform.
The US Treasury had said Tornado Cash was used to launder over USD 7 billion worth of crypto since it was created in 2019, including USD 455 million for North Korea’s Lazarus Group.
In the ruling, US Circuit Judge Don Willett said federal law only gave OFAC the authority to regulate property, and that Tornado Cash’s smart contracts did not qualify as property.
“Tornado Cash’s immutable smart contracts … are not the ‘property’ of a foreign national or entity, meaning they cannot be blocked under IEEPA, and OFAC overstepped its
congressionally defined authority,” the ruling says.
Willett said it was up to Congress to update the IEEPA, the 1977 law granting the executive branch the authority to freeze assets of a foreign actor on national security grounds.
“OFAC’s concerns with illicit foreign actors laundering funds are undeniably legitimate,” he said. “Perhaps Congress will update IEEPA … to target modern technologies like crypto-mixing software.”
Coinbase legal officer Paul Grewal welcomed the decision on social media as a “historic win” for crypto. “No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorised,” he said.
In May, one of Tornado Cash’s developers, Alexey Pertsev, was sentenced to five years and four months in prison in the Netherlands for money laundering.
Two Tornado Cash founders, Roman Semenov and Roman Storm, were charged in the US last year with money laundering and sanctions violations by New York federal prosecutors.
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