The US Fifth Circuit Court of Appeals has ruled that the OFAC overstepped its authority in imposing sanctions on the cryptocurrency mixer Tornado Cash, as reported by The Block.
The previous district court decision has been overturned.
“Immutable smart contracts of Tornado Cash (lines of code ensuring privacy) do not constitute ‘property’ of a foreign national or entity, meaning they cannot be blocked under the IEEPA and that OFAC exceeded its congressionally defined powers,” stated the panel of judges.
The ruling noted that even under OFAC’s broader definition of “any property,” the crypto mixing service provider remains outside regulatory reach, as its smart contracts are neither property nor traditional contracts or services.
Following the news, the price of the mixer’s utility token TORN surged approximately 870%—from $3.6 to a peak of nearly $35. At the time of writing, it is trading at $16.54, according to CoinGecko.
The current court decision stems from a lawsuit filed by six Ethereum and Tornado Cash users against the US Treasury in September 2022. They argued that the sanctions were excessive, as Tornado Cash is not a person or entity, but software.
However, in August 2023, a district court sided with OFAC, ruling that the DAO managing the mixer is a real legal entity, structurally akin to a corporation. Additionally, it “benefits” from the service’s smart contracts, making it an accountable organization.
The recent ruling noted that even with sanctions, Tornado Cash remains accessible “to anyone with an internet connection.”
Senior Counsel at ConsenSys, Bill Hughes, called the decision “a good win that the Supreme Court is unlikely to overturn.”
Paul Grewal, Chief Legal Officer at Coinbase, which supported the lawsuit against the Treasury, stated the event is of historic significance “for cryptocurrency and everyone who cares about protecting freedom.”
In August 2022, OFAC imposed sanctions on Tornado Cash, prohibiting US individuals and companies from engaging in financial transactions with it. The agency also linked the mixer to North Korea’s nuclear weapons program.
Last week, a court extended the pre-trial detention of Tornado Cash developer Alexey Pertsev. In May, a Dutch court found him guilty of laundering $1.2 billion through the mixer and sentenced him to 64 months in prison. In July, he was denied bail pending appeal.
Money laundering and sanctions violation charges have also been brought against Tornado Cash co-founders Roman Storm and Roman Semenov.