A panel of federal judge last night decided in favor of Tornado Cash’s users, another major win for crypto. It was ruled by the judges that in 2022, the US Treasury Department illegally sanctioned a cryptocurrency mixing service.
A rare government loss is the perfect way to start a long-weekend holiday.
Quick refresher: In August 2022 the Treasury’s Office of Foreign Assets Control sanctioned Tornado Cash, alleging that it had been used as a mixer to launder over $7 billion of cryptocurrency.
In September 2022 six Ethereum users with the financial backing of Coinbase filed a complaint against OFAC, challenging its authority in designating Tornado Cash a Specially Designated National (SDN). In September 2023, a Texas federal court sided with Treasury and ruled that sanctions could be imposed. “person” Definition of a “individual or entity.”
Coinbase, along with Tornado users, appealed this decision at the Fifth Circuit Court of Appeals. This brings us back to last night’s ruling.
Judge Don Willett — one of three circuit judges on the panel — wrote that Tornado Cash, which operates by executing immutable smart contracts, cannot be considered “property.” He added that it is outside OFAC’s jurisdiction.
The Treasury is yet to comment on this decision, or reveal whether it plans to appeal. In that case, the Supreme Court may weigh in.
Willett acknowledged that there is a problem. “real-world downsides of certain uncontrollable technology falling outside of OFAC’s sanctioning authority.” But still, the Congress must update legislation, said he.
The decision on Tuesday comes after a similar loss in a separate Tornado Cash case. Last September, a bid by Tornado Cash founder Roman Storm to have the US Government’s case brought against him dismissed was rejected. Judge Katherine Polk Failla rejected defense arguments that the founders are being singled out for “writing code.”
“As I understand the charges in the indictment, the Tornado Cash enterprise was not an altruistic venture,” Failla was added to the conference call in September. “Among other things, the indictment alleges that Mr. Storm and other Tornado Cash founders solicited approximately $900,000 in financing from a venture capital fund in exchange for an expectation that the funds would receive a share of future profits from the Tornado Cash service.”
Storm and Roman Semenov are two Tornado Cash co-founders who were accused of money laundering in 2023 and sanction violations in relation to their involvement in creating the service. Storm will be charged on December 9, as per a ruling made earlier in the month. Nevertheless, the most recent development in the OFAC’s case may impact the timeline as well as the charges.
Storm’s attorneys did not reply to our comments immediately. This is not surprising given it’s Thanksgiving and that a ruling by a high court late at night may have changed the case.
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