US Court Rules Tornado Cash Sanctions Exceeded Treasury Authority
In a significant ruling for the crypto industry, the US Federal Appeals Court determined that the US Treasury exceeded its authority by sanctioning the crypto mixer Tornado Cash. The Treasury had claimed that North Korean hackers used the platform to launder $455 million in 2022.
A three-judge panel from the 5th US Circuit Court of Appeals ruled in favor of six Tornado Cash users who challenged the legality of the sanctions. They argued that the software itself cannot be sanctioned under US law and differentiated themselves from those misusing it for illegal activities.
Cryptocurrency exchange Coinbase supported this legal challenge, warning that the sanctions could negatively impact the crypto sector.
Circuit Judge Don Willett acknowledged the government's concerns regarding foreign entities laundering funds through Tornado Cash but stated that federal law permits the Treasury to target property, not software. He noted:
“Perhaps Congress will update (the law), enacted during the Carter Administration, to target modern technologies like crypto-mixing software. Until then, we hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the ‘property’ of a foreign national or entity, meaning they cannot be blocked.”
In 2022, the Treasury sanctioned Tornado Cash, alleging it laundered over $7 billion in digital assets. Dutch authorities sentenced Tornado Cash developer Alexey Pertsev to five years in prison in May.
Remove Tornado Cash Sanctions for Smart Contracts
Coinbase Chief Legal Officer Paul Grewal commented on the ruling, expressing pride in assisting Tornado Cash in this case. He stated:
Tornado Cash smart contracts “must now be removed from the sanctions list and US persons will once again be allowed to use this privacy-protecting protocol. Put another way, the government’s overreach will not stand.”
Grewal emphasized that penalizing an entire software due to misuse by certain criminals represents an overreach of jurisdictional powers, arguing that the Treasury's sanctions on Tornado Cash exceeded its legal authority. He concluded by stating appreciation for the Court’s careful consideration and reaffirmed Coinbase's commitment to advocate for clear regulations that support innovation.