Appeals Court Rules Tornado Cash Sanctions by OFAC Unlawful
This is a segment from the Forward Guidance newsletter.
Tornado Cash Ruling
A panel of federal judges ruled that the US Treasury Department unlawfully sanctioned Tornado Cash in 2022, marking a significant outcome for the crypto industry.
Background
The Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in August 2022, claiming it facilitated over $7 billion in cryptocurrency laundering. In September 2022, six Ethereum users, backed by Coinbase, filed a lawsuit against OFAC challenging its authority to designate Tornado Cash as a specially designated national (SDN). A Texas federal judge initially sided with the Treasury in September 2023, stating the sanctions were permissible.
Fifth Circuit Court Decision
Following an appeal by Coinbase and Tornado Cash users, the Fifth Circuit Court ruled that Tornado Cash, operating through immutable smart contracts, cannot be classified as “property,” placing it outside OFAC’s jurisdiction.
Judge Don Willett noted the need for Congress to update legislation regarding uncontrollable technology, despite acknowledging real-world implications.
Related Legal Developments
Previously, a bid by Tornado Cash co-founder Roman Storm to dismiss the government’s case was denied. The court found evidence suggesting that the Tornado Cash enterprise was not purely altruistic and involved financial solicitation from venture capitalists.
Storm and another founder, Roman Semenov, were charged with money laundering and sanctions violations in August 2023. Storm is set for arraignment on December 9, 2023. The recent ruling could influence the timeline and charges against him.