A U.S. District Court for the Western District of Texas reversed prior sanctions against the crypto mixer Tornado Cash, causing a significant increase in the value of its native token, TORN.
Background of Tornado Cash Sanctions
The sanctions were imposed by the Office of Foreign Assets Control (OFAC) in August 2022, citing Tornado Cash's alleged use by North Korea for laundering stolen cryptocurrency. Developer Alexey Pertsev was arrested in connection, receiving a sentence of more than five years.
Appeal and Court Ruling
Tornado Cash user Joseph Van Loon and other plaintiffs sued the U.S. Treasury, claiming the agency exceeded its authority. They argued Tornado Cash's immutable smart contracts cannot be defined as 'property' under the International Emergency Economic Powers Act (IEEPA), which formed the basis of the sanctions. The court also refuted the notion of Tornado Cash being a service, highlighting that the lack of ongoing human effort in running immutable smart contracts disqualifies them as such.
Legal Consequences and Community Reaction
Legal challenges against Tornado Cash and its developers extend beyond criminal cases. Crypto advocacy groups, including Coin Center and Coinbase-backed Tornado Cash users, filed lawsuits against the U.S. Treasury. In November, an appellate court ruled that OFAC overstepped its authority by sanctioning Tornado Cash's immutable smart contracts, which cannot be altered by any individual or entity. The ruling did not affect criminal cases.
The court's reversal on Tornado Cash sanctions sets a significant precedent in the regulation of decentralized technologies and their legal classification.
