A U.S. appellate court recently ruled that the Treasury Department's Office of Foreign Assets Control (OFAC) sanctions against the cryptocurrency mixer Tornado Cash exceeded its statutory authority, stating that Tornado Cash's smart contracts do not constitute 'property,' but the case is not fully resolved.
U.S. court rules that smart contracts do not constitute property and services.
Three judges in the U.S. Fifth Circuit Court of Appeals jointly ruled on 11/26 that OFAC's sanctions against Tornado Cash smart contracts were not consistent with the International Emergency Economic Powers Act (IEEPA).
The judgment noted that Tornado Cash's smart contracts' characteristics of 'immutability,' 'no control,' and 'non-ownership' disqualify them from sanction conditions. This ruling overturned the previous decision of the Texas district court that supported OFAC and agreed to some of the users' requests for summary judgment.
U.S. appellate court rules Tornado Cash wins document Tornado Cash controversy behind it, privacy tools and money laundering accusations.
Tornado Cash is a mixer based on Ethereum launched in 2019 that obscures the flow of cryptocurrency transactions through 'mixing' users' transactions, enhancing transaction privacy. In August 2022, the U.S. Treasury indicated that since Tornado Cash went live, funds totaling over $7 billion had been used for money laundering, and it placed 44 of its smart contract addresses on the 'Specially Designated Nationals and Blocked Persons (SDN)' blacklist.
Just weeks after the U.S. Treasury added Tornado Cash to the SDN blacklist, six Tornado Cash users supported by Coinbase led a lawsuit against the Treasury, claiming the sanctions 'do not comply with legal provisions.' The cryptocurrency advocacy organization Coin Center also filed a related lawsuit in October of the same year.
At the beginning of 2023, a federal court in Texas supported the Treasury's ruling, stating that Tornado Cash is an entity that can be designated for sanctions. Users and groups dissatisfied with the ruling can appeal at any time.
(Tornado Cash developer Alexey Pertsev sentenced to 64 months in prison in the Netherlands.)
Smart contracts will be removed from the sanctions list, and Coinbase's legal team has 'applauded' this decision.
After the latest ruling was announced, Coinbase's chief legal officer Paul Grewal declared on Twitter: 'This is a historic victory for cryptocurrency, and these smart contracts must be removed from the sanctions list.'
However, some lawyers caution that this ruling does not mean that other aspects of Tornado Cash can escape OFAC scrutiny, stating that this decision only applies to 'non-managed smart contracts,' while other parts may still be subject to OFAC control, and related disputes are not yet settled.
(Tornado Cash developers' defense team strikes back: Roman Storm accuses prosecutors of overreach.)
This article titled 'Will DeFi be immune from regulation? Tornado Cash users win, U.S. court rules OFAC overstepped in sanctioning smart contracts' first appeared in Chain News ABMedia.
