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The court determined that Tornado Cash smart contracts are not "property" under federal law, limiting Treasury's scope of action.Coinbase supported and funded the legal challenge, arguing that sanctioning open-source software sets a harmful precedent.The ruling means Tornado Cash smart contracts must be removed from the sanctions list, allowing US citizens to use the platform again.In a major victory for the crypto industry and protection of privacy, the US Federal appeals court ruled that the US Treasury overstepped its authority by putting sanctions on crypto mixer Tornado Cash. In 2022, the Treasury that the hackers of North Korea used the privacy software platform to launder $455 million.
A three-judge panel from the 5th US Circuit Court of Appeals in New Orleans ruled in favor of six users of Tornado Cash. The defendants challenged the legality of sanctions imposed on the software.
The Tornado Cash users argued that the crypto mixing software cannot be sanctioned under US law. They clearly distinguished themselves from individuals or entities that misuse the software for illicit purposes.
Cryptocurrency exchange Coinbase had supported and funded the legal challenge while warning that the sanctions could set a damaging precedent for the crypto industry.
In the opinion written by Circuit Judge Don Willett, the court acknowledged the government’s concerns about foreign actors laundering funds through Tornado Cash. However, the panel determined that federal law allows the Treasury Department to target property, not software, thereby limiting its scope of action. Circuit Judge Willet also wrote:
“Perhaps Congress will update (the law), enacted during the Carter Administration, to target modern technologies like crypto-mixing software. 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.”
In 2022, the US Treasury Department sanctioned Tornado Cash alleging it laundered over $7 billion in digital assets. In May, Dutch authorities sentenced Tornado Cash developer Alexey Pertsev to a five-year prison term.
Remove Tornado Cash Sanctions for Smart Contracts
Commenting on the development, Coinbase Chief Legal Officer Paul Grewal said that his company is proud to help the crypto mixer software firm in fighting this case. He added:
Tornado Cash smart contracts “must now be removed from the sanctions list and US persons will once again be allowed to use this privacy-protecting protocol. Put another way, the government’s overreach will not stand.”
Grewal added that blocking an entire software just because of misuse by some criminals is an absolute overreach of jurisdictional powers. He argued that the sanctions imposed by the Treasury Department on Tornado Cash exceeded its legal authority.
“We appreciate the Court’s careful consideration in this matter. Looking ahead, Coinbase will not relent in our efforts to advocate for clear, fair rules that foster innovation in the US and abroad,” Grewal concluded.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
