US court overturns Treasury sanctions on Tornado Cash

The US District Court for the Western District of Texas has overturned the sanctions imposed by the US Treasury’s Office of Foreign Assets Control (OFAC) on crypto-mixing protocol Tornado Cash.

A Jan. 21 filing from the Fifth Circuit Court of Appeals ordered OFAC to remove Tornado Cash-linked addresses from its Specially Designated Nationals and Blocked Persons (SDN) list.

Tornado Cash is a decentralized protocol that lets users deposit assets into shared pools. It enhances privacy by enabling untraceable withdrawals.

While the platform gained traction for its privacy features, it attracted scrutiny after being misused by bad actors, including North Korea’s Lazarus Group, to launder stolen crypto. OFAC imposed sanctions on Tornado Cash in 2022, citing its role in facilitating illicit activities.

This ruling challenges the legal grounds for sanctioning immutable blockchain technology and sets a precedent for how crypto protocols are treated under existing US laws.

The ruling

The court’s decision emphasized that Tornado Cash’s smart contracts—immutable pieces of code on the blockchain—are not property in the legal sense. These contracts, created through a “trusted setup ceremony,” cannot be owned, controlled, or altered.

The ruling noted that this unchangeable nature ensures the software operates independently of any entity, making it impossible to restrict access, even for sanctioned individuals or groups.

According to the court, because the smart contracts are autonomous and accessible to anyone, sanctioning the protocol does not block bad actors from using it.

The filing stated:

“The software continues to operate regardless of the sanctions, and the blockchain technology ‘allows peer-to-peer transfers…without requiring the recipient to consent to transfer,’ some users may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent.”

Moreover, the court suggested that Congress update laws like the International Emergency Economic Powers Act (IEEPA) to address modern innova

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Author: Oluwapelumi Adejumo

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