U.S. Appeals Court Declares OFAC Overstepped with Tornado Cash Sanctions
U.S. Federal Appeals Court has overturned sanctions placed on the cryptocurrency mixer Tornado Cash by the Treasury Department’s Office of Foreign Assets Control (OFAC). The ruling challenges the agency’s authority and redefines the boundaries of regulatory control in the decentralized finance (DeFi) space.
The Fifth Circuit Appeals Court determined that Tornado Cash’s smart contracts—self-executing lines of privacy-preserving software—do not qualify as “property” under the International Emergency Economic Powers Act (IEEPA). This key finding invalidates OFAC’s designation of Tornado Cash as a sanctioned entity.
“Tornado Cash’s immutable smart contracts are not the 'property' of a foreign national or entity, meaning they cannot be blocked under IEEPA,” stated the court’s three-judge panel. The ruling underscores that such decentralized tools are beyond the scope of traditional regulatory frameworks, as they are neither ownable nor governed in a conventional sense.
Background on the Sanctions
In August 2022, OFAC sanctioned Tornado Cash, restricting U.S. residents and businesses from transacting with the service. The agency linked Tornado Cash to money laundering activities, including funding North Korea’s nuclear weapons program. Critics argued that these sanctions unfairly targeted a tool rather than individuals or organizations.
The sanctions caused significant turmoil within the crypto community, igniting debates about personal freedom and government overreach. Six plaintiffs, led by Tornado Cash user Joseph Van Loon, filed a lawsuit against the Treasury and other officials, asserting that the sanctions were unconstitutional and mischaracterized Tornado Cash as more than just software.
Market Reaction
The court’s decision sent Tornado Cash’s governance token, TORN, soaring. TORN surged from $3.60 to a peak of nearly $35, marking an 870% increase. As of now, it trades at approximately $16.70.
Implications and Reactions
The ruling highlights the challenges of applying traditional regulatory mechanisms to decentralized platforms. The court noted that, despite the sanctions, Tornado Cash’s smart contracts remain accessible globally to anyone with an internet connection.
Legal experts and crypto advocates celebrated the decision. “A good win,” said Bill Hughes, senior counsel at Consensys. Coinbase’s Chief Legal Officer, Paul Grewal, echoed the sentiment, calling it a “historic win for crypto and all who care about defending liberty.” Coinbase, which supported the lawsuit, views this as a significant step in preserving innovation within the crypto space.
While the ruling marks a major victory for decentralized finance, it also signals a need for updated regulatory approaches to address the unique nature of blockchain technology and its applications.