A U.S. appeals court ruled that the U.S. Treasury’s Office of Foreign Assets Control (OFAC) overstepped its authority when it sanctioned Tornado Cash’s smart contracts. This decision has led to a surge in the value of Tornado Cash’s native token, TORN, which saw a nearly 900% increase following the news.
Background of the Case
Tornado Cash, a decentralized crypto-mixing service, allows users to make transactions more private by obscuring the source and destination of their funds. In August 2022, the U.S. The Treasury imposed sanctions on a smart contract, accusing it of laundering over $7 billion worth of cryptocurrency since its creation in 2019. The Treasury added 44 Tornado Cash smart contract addresses to its Specially Designated Nationals (SDN) list, which blocks access to assets linked to illegal activities.
In response, six users, led by Joseph Van Loon, filed a lawsuit against the Treasury in 2022. The plaintiffs argued that the sanctions on smart contracts were unlawful. In October 2022, the crypto advocacy group Coin Center also filed a similar lawsuit.
Immutable Smart Contracts Found Not to Be Property Under U.S. Law
On November 26, 2024, a three-judge panel from the Fifth Circuit Court of Appeals ruled in favor of the plaintiffs. The Court decided that OFAC had exceeded its authority under the International Emergency Economic Powers Act (IEEPA). The judges explained that Tornado Cash’s smart contracts are not considered “property” under U.S. law because they are immutable. This means that no one can control, own, or alter them. Since the IEEPA allows the U.S. government to block property tied to foreign nationals or entities, the court ruled that Tornado Cash’s smart contracts do not meet the criteria for sanctions.
We hold that Tornado Cash’s immutable smart contracts… are not the ‘property’ of a foreign national or entity. They cannot be blocked under IEEPA, and OFAC overstepped its congressionally defined authority.
the panel stated.
The court’s decision reversed an earlier ruling by a Texas federal court, which had sided with the U.S. Treasury, supporting its decision to sanction Tornado Cash.
Ruling Applies Only to Tornado Cash Smart Contracts
While this ruling is a win for smart contract and its users, it does not mean the platform is entirely free from scrutiny. Bill Hughes, a lawyer with ConsenSys, pointed out that the court’s decision only applies to Tornado Cash’s immutable smart contracts and not the broader platform or other assets. The U.S. Treasury still has the authority to target other parts of Tornado Cash. This especially applies to any components that are controllable by administrators.
This ruling also clarifies that smart contract’s privacy-enhancing technology cannot be blocked under federal law. However, it does not fully dismiss the possibility of future regulatory actions against the platform. With this court ruling, U.S. users will once again be able to use the privacy features offered by Tornado Cash. However, as Hughes mentioned, this is only a partial victory.
TORN saw an increase of over 866% following the court’s decision, reaching a high of $34.98—its highest price in two years. TORN is currently trading at $17.
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