Tornado Cash
Outside the Netherlands, Tornado Cash is also under fire in the U.S. over the crypto mixer's alleged facilitation of Lazarus Group transactions. Tornado Cash Website/Screenshot

KEY POINTS

  • Tornado Cash was sanctioned in August 2022 amid alleged use among threat actors, including Lazarus Group
  • The crypto mixing service's co-founders have been charged by the DOJ with sanctions violations and money laundering
  • Several crypto leaders hailed the win as a victory not just for Tornado Cash but for the crypto space as a whole

Tornado Cash just had a major legal victory after an Appeals Court called on the United States to drop sanctions against the crypto anonymizing tool, also adding that the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) committed an overreach of authority in the case.

The U.S. Court of Appeals for the Fifth Circuit ruled that the crypto mixing tool's immutable smart contracts are not foreign property and thus shouldn't be blocked under the International Emergency Economic Powers Act (IEEPA).

Inside the OFAC Sanctions

The Treasury's OFAC sanctioned Tornado Cash in August 2022, alleging that the tool was a major platform used by threat actors to launder crypto assets that were stolen across various crypto platforms. It said Tornado Cash was being utilized by notorious North Korea-linked hackers Lazarus Group.

About a year later, the Justice Department charged Tornado Cash co-founders Roman Storm and Roman Semenov with federal money laundering and sanctions violations. While Storm is set to face criminal trial this month following the tossing of his dismissal bid, Semenov remains at large.

Aside from Storm and Semenov, Tornado Cash developer Alexey Pertsev is also in legal turmoil. He was found guilty of money laundering by Dutch judges earlier this year and was sentenced to five years and four months in prison.

Appeals Court Turns the Table on OFAC

In its Tuesday ruling, the Appeals Court noted that while the OFAC's concerns regarding illicit foreign actors laundering funds are "undeniably legitimate," Congress has yet to amend the IEEPA to include crypto-mixing software and until lawmakers update the Act, Tornado Cash can't be blocked.

"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 (1) they cannot be blocked under IEEPA," the ruling stated.

Furthermore, the Court said it holds that the "OFAC overstepped its congressionally defined authority" in sanctioning Tornado Cash.

Crypto Experts, Leaders Hail 'Privacy' Win

The ruling doesn't mean that Tornado Cash is now completely out of regulatory or federal bounds, but many crypto industry experts and leaders agreed that the Appeals Court ruling was a good legal victory for the embattled platform.

Consensys lawyer Bill Hughes said it was "unlikely" the Supreme Court will reverse the ruling, considering how the Appeals Court made sure to reiterate that the "immutable contracts at issue in this appeal are not property because they are not capable of being owned."

Coinbase Chief Legal Officer Paul Grewal said it was "privacy" that won in the case. "This is a historic win for crypto and all who cares about defending liberty," he wrote. Coinbase backed the lawsuit against the U.S. Treasury that accused the Department of violating American constitutional rights.

The Blockchain Association said the ruling marks a major win for crypto as a whole and "the right to develop privacy technology" in the country. "Privacy is normal," the pro-innovation nonprofit concluded.

Read more