The US District Court for the Western District of Texas has overturned the sanctions imposed by the US Treasury’s Office of Foreign Assets Control (OFAC) on crypto-mixing protocol Tornado Cash.
The Fifth Circuit Court of Appeals, in a filing dated Jan. 21, ordered OFAC remove Tornado Cash addresses from its Specially Designated Nationals and Blocked Persons list (SDN).
Tornado Cash uses a decentralized protocol to allow users to place assets into shared pools. The protocol enhances security by making withdrawals untraceable.
While the platform gained traction for its privacy features, it attracted scrutiny after being misused by bad actors, including North Korea’s Lazarus Group, to launder stolen crypto. OFAC placed sanctions on Tornado cash in 2022 due to its involvement in illicit activities.
This decision challenges the legal basis for sanctioning blockchain technology that is immutable and establishes a precedent on how crypto protocols will be treated by existing US laws.
The decision
The court’s decision emphasized that Tornado Cash’s smart contracts—immutable pieces of code on the blockchain—are not property in the legal sense. The contracts created by a “trusted setup ceremony,”It cannot be possessed, controlled or changed.
This unchangeable feature ensures that the software is independent of any organization, and therefore, it’s impossible to limit access for anyone, not just sanctioned groups or individuals.
The court ruled that because smart contracts can be used by anyone and are accessible, the sanctioning of the protocol will not prevent bad actors from utilizing it.
This filing states:
“The software continues to operate regardless of the sanctions, and the blockchain technology ‘allows peer-to-peer transfers…without requiring the recipient to consent to transfer,’ some users may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent.”
The court also suggested Congress update existing laws, such as the International Emergency Economic Powers Act to reflect modern developments like crypto-mixing protocol. The current law does not allow for the restriction of tools such as Tornado Cash, which operate independently.
Furthermore, the ruling highlighted that OFAC’s actions exceeded its legal authority, as the Treasury Department cannot create new laws or reinterpret existing ones to fit evolving technologies.
They wrote:
“We decline the Department’s invitation to judicial lawmaking-revising Congress’s handiwork under the guise of interpreting it. Legislating is Congress’s job— and Congress’s alone.”
Cryptocommunity celebrates
Privacy activists and blockchain fans welcomed this ruling enthusiastically. The ruling is viewed by many as a positive step for financial freedom and decentralization.
Antoni Zolciak is a privacy-oriented blockchain builder who celebrated the ruling as a win for privacy on-chain, and others noted that it was important in protecting user rights within decentralized ecologies.
A privacy-focused cryptocurrency trading platform called 0x0 said:
“This reaffirms the importance of protecting financial freedom and user rights in Web3. Privacy is not a privilege—it’s a fundamental right.”
On the other hand, Paul Grewal, Coinbase’s chief legal officer, urged the US government to avoid further attempts at challenging the ruling. He wrote that:
“While a certiorari petition to the Supreme Court separate from any appeal may be filed before February 24, we urge the government to move on and drop any last ditch effort. Every day of personal privacy matters.”
Meanwhile, the market also reacted positively to the development, with the platform’s TORN token surging by nearly 200% to reach a two-month high of $25.24 before settling at $21.35, according to CryptoSlate’s data.
Other privacy-focused cryptos, such as Monero Zcash Mina and Horizen also saw significant price hikes of more than 5% over the period.
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