US Court: Sanctions Against Tornado Cash are Illegal

The exchange rate of the TORN protocol's native token increased by over 800% following the news.

A US court has ruled that sanctions against crypto-mixer Tornado Cash are illegal. The open-source smart contracts on which Tornado Cash is based do not belong to anyone and, for this reason, cannot be subject to sanctions, according to the judges.

The Court of Appeals for the Fifth Circuit Rules that OFAC Exceeded the Limits Sanctioning Tornado Cash's Smart Contracts.

In a 26 November opinion, a three-judge panel of the US Court of Appeals for the Fifth Circuit (which handles cases in Louisiana, Mississippi and Texas) ruled that the Office of Foreign Assets Control (OFAC) exceeded its authority by sanctioning Tornado Cash's smart contracts.

"We hold that Tornado Cash's immutable smart contracts (strings of software code that provide privacy) are not the "property" of a foreign person or entity and, therefore, cannot be blocked under IEEPA (the Act). Therefore, OFAC exceeded its authority as defined by Congress," the document reads.

In 2022, OFAC had blacklisted Tornado Cash for facilitating the laundering of $7 billion in illicit proceeds. A few weeks later, six Tornado Cash users led by Joseph Van Loon, with the support of Coinbase, had sued the Treasury Department, claiming that the inclusion of 44 Tornado Cash smart contract addresses on the sanctions list was 'not in accordance with the law'.

Almost a year later, in the summer of 2023, a US federal court had ruled in favour of the Treasury Department, dismissing the appeal of the plaintiffs led by Van Loon. This decision was later appealed, leading to the most recent ruling on 26 November.

"These smart contracts should now be removed from the sanctions list, and US citizens will once again be able to use this privacy-protecting protocol," wrote Paul Grewal, legal counsel for Coinbase.

The native token of the TORN reacted to the news with an increase of about 800%, rising from $3.62 to $34.98. On the morning of 27 November, the price of TORN corrected itself and, by 12 noon, the token was trading at around $15, still registering an increase of 306% over the day.

In the meantime, the fate of the developers of Tornado Cash remains uncertain. In 2022, Alexey Pertsev was arrested in the Netherlands on charges of being involved in money laundering through the crypto-mixer. In May this year, a court found Pertsev guilty, sentencing him to five years and four months in prison. His supporters claim that Pertsev merely wrote the code for Tornado Cash, without being involved in the criminal activities attributed to the use of the mixer.

Two other founders of Tornado Cash, Roman Semenov and Roman Shtorm, were charged with laundering $1 billion. Semenov was indicted in absentia, while Storm was arrested in August 2023 but released on $2 million bail. At the time of his arrest, he pleaded not guilty. Storm's trial in the United States is set for April 2025.