U.S. sanctions against Tornado Cash, a service that anonymizes crypto transactions, must be abandoned, a federal appeals court ruled Tuesday.
The decision answers a controversial privacy debate on whether the government โ via a sanctions list maintained by the U.S. Treasury Department โ has a right to target the technology because itโs associated with criminals. The ruling reversed a district courtโs August ruling that had sided with the governmentโs pursuit of what it had characterized as a โnotoriousโ crypto-mixing service.
โTornado Cashโs immutable smart contracts (the lines of privacy-enabling software code) are not the โpropertyโ of a foreign national or entity,โ according to a U.S. Court of Appeals for the 5th Circuit ruling, so they canโt be blocked under the International Emergency Economic Powers Act, and the Treasuryโs Office of Foreign Assets Control โoverstepped its congressionally defined authorityโ when it did so.
OFAC had sanctioned Tornado Cash last year, contending that it was a vital tool used by bad actors including North Koreaโs Lazarus Group to launder crypto tokens pilfered from platforms and games such as Axie Infinity.
Coinbase Inc. (COIN) and others had sued the government, claiming it had overreached. Paul Grewal, chief legal officer of crypto exchange Coinbase, cheered the ruling in a Tuesday posting on X, calling it a โhistoric win for crypto.โ
โThese smart contracts must now be removed from the sanctions list and U.S. persons will once again be allowed to use this privacy-protecting protocol,โ Grewal wrote. โPut another way, the governmentโs overreach will not stand.โ
The circuit court recognized the difficulty of this situation.
โWe readily recognize the real-world downsides of certain uncontrollable technology falling outside of OFACโs sanctioning authority,โ the judges said, referencing the ineffectiveness of a law that was established well before the world moved online. โBut we must uphold the statutory bargain struck (or mis-struck) by Congress, not tinker with it.โ