The U.S. Fifth Circuit Court of Appeals ruled that OFAC overstepped its authority in imposing sanctions against the cryptocurrency mixer Tornado Cash. This was reported by The Block.
The previous district court decision has been overturned.
'Immutable smart contracts of Tornado Cash (lines of code that ensure privacy) are not 'property' of a foreign citizen or organization, which means they cannot be blocked under IEEPA and that OFAC exceeded its powers defined by Congress,' the judges stated.
The ruling notes that even considering the broader definition of the term 'any property' by OFAC, the provider of the crypto mixer remains outside the regulatory scope, as its smart contracts are neither property nor traditional contracts or services.
In light of the news, the utility token price of the mixer TORN rose by about 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 was made based on a lawsuit by six Ethereum and Tornado Cash users against the U.S. Treasury, filed in September 2022. They claimed the sanctions were excessive, as Tornado Cash is not a person or organization, but software.
However, in August 2023, a district court sided with OFAC, ruling that the DAO managing the mixer is a real legal entity, the structure of which is virtually indistinguishable from a joint-stock company. In addition, it 'benefits' from the smart contracts of the service, making it an accountable organization.
The recent ruling states that even with the sanctions, Tornado Cash remains accessible 'to anyone with an Internet connection.'
Senior Counsel at ConsenSys Bill Hughes called the decision 'a good victory that the Supreme Court is unlikely to overturn.'
Paul Grewal, Chief Legal Officer of the Coinbase exchange, which supported the lawsuit against the Treasury, stated the historical significance of this event 'for cryptocurrency and all who care about protecting freedom.'
Recall that OFAC imposed sanctions against Tornado Cash in August 2022, prohibiting individuals and companies in the U.S. from engaging in financial interactions with it. The agency also linked the mixer to North Korea's nuclear weapons program.
Last week, the court extended the pre-trial detention of Tornado Cash developer Alexey Pertsev. In May, a court in the Netherlands 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 an appeal.
Charges of money laundering and sanctions violations have also been brought against the co-founders of Tornado Cash — Roman Storm and Roman Semenov.
