US Court Alters Tornado Cash Sanctions: Insights on Privacy Case

by Giorgi Kostiuk

a year ago

A US court has modified sanctions against the Tornado Cash crypto mixer, a move that could be significant for privacy technologies and potentially influence more revolution-friendly cryptocurrency laws.

Alteration of OFAC Sanctions

The US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the cryptocurrency mixing protocol Tornado Cash three years ago for allegedly assisting the North Korean Lazarus Group in laundering over $455 million in stolen virtual assets. The sanctions led to the arrest of Tornado Cash developer Alexey Pertsev, who was convicted of money laundering by Dutch judges on May 14, 2024. The court sentenced him to five years and four months in prison for laundering around $1.2 billion in illegal assets. As per the court filing released on January 21, the US District Court for the Western District of Texas has altered the OFAC sanctions against the crypto mixing protocol, marking a significant legal win.

It is instructed and determined that the judgment of the district court is altered, and the root is remanded to the district court for further proceedings in agreement with the opinion of this court.

Court's Denial

Pertsev remains in custody on money laundering charges despite operating a non-custodial crypto mixer that never holds or controls user funds. During his trial in March, Pertsev argued that he could not be held accountable for the actions of those who misused the Tornado Cash protocol for corrupt or illicit purposes. The court did not accept this, stating that if Pertsev and other co-founders of Tornado Cash genuinely wished to prevent criminal misuse, they would have taken further steps to enhance security.

Arguments for Privacy

The court judgment came after six Tornado Cash users filed an appeal against the OFAC's sanctions. On November 26, an appeal stated that OFAC exceeds its 'statutory authority' by blacklisting Tornado Cash in 2022. The six plaintiffs also claimed that blockchain transactions can be traced, which is why some crypto users seek extra options for transaction privacy.

We hold that smart contracts of Tornado Cash are not the property of a foreign national or entity, which means they cannot be hindered under IEEPA.

The court's decision on Tornado Cash highlights the complexities in regulating privacy technology and raises important questions about the rights of users to keep their financial transactions private.

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