By EZ in News — Nov 27, 2024

U.S. Appeals Court Overturns Sanctions Against Tornado Cash

The Fifth Circuit Court of Appeals determined that the Office of Foreign Assets Control (OFAC) exceeded its authority by adding Tornado Cash to its Specially Designated Nationals and Blocked Persons (SDN) List.

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This decision overturns a District Court of Texas ruling that had previously upheld OFAC's action under the International Emergency Economic Powers Act (IEEPA).

"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, and (2) OFAC overstepped its congressionally defined authority," ruled the three-judge panel at the Fifth Circuit Appeals Court.

The court determined that Tornado Cash's smart contracts are merely lines of code and do not qualify as services or property.
It also concluded that Tornado Cash does not own or control these contracts because the developers have relinquished any role in their operation, distinguishing between mutable and immutable software.

"The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts," stated the Federal appeals court.

The court stated that OFAC “overstepped its congressionally defined authority” and acknowledged that there are legitimate reasons why a law-abiding individual might use a mixer like Tornado Cash.
The judges further clarified that despite OFAC’s designation of Tornado Cash, the platform’s immutable smart contracts continue to operate. Moreover, because the software remains functional despite sanctions and blockchain technology enables peer-to-peer transfers without requiring the recipient’s consent, some users may be held liable if someone transfers digital assets to them via Tornado Cash without their knowledge or approval.

"We decline the Department’s invitation to judicial lawmaking. [...] Legislating is Congress’s job—and Congress’s alone," was stated in the ruling.

In August 2022, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, accusing it of being a primary platform for threat actors to launder stolen crypto assets from various platforms.
Approximately a year later, the Justice Department charged Tornado Cash co-founders Roman Storm and Roman Semenov with federal money laundering and sanctions violations. Storm is scheduled to stand trial this month after his dismissal was denied, while Semenov remains at large.
In addition to Storm and Semenov, Tornado Cash developer Alexey Pertsev is facing legal troubles in the Netherlands. Earlier this year, Dutch judges convicted him of money laundering and sentenced him to five years and four months in prison.