A federal court says that the Treasury’s restrictions on Tornado Cash are illegal
The court ruling indicated that sanctions against the crypto aggregator may not effectively restrict access for sanctioned entities.
A US federal appeals court has ruled that the Treasury Department’s sanctions on crypto aggregator Tornado Cash were excessive because they unjustly targeted open-source software, which lacks legal justification under current law.
Tornado Cash’s smart contracts do not meet the criteria for classification as property under the International Emergency Economic Powers Act (IEEPA) and related legal interpretations, regardless of the fact that the US Treasury and its OFAC department have the authority to block “any property in which any foreign country or a national thereof has any interest,” according to the court ruling.
The decision made a point that the irrevocable smart contracts in question cannot be owned, so they cannot be considered property in this appeal.
Concerns regarding Tornado Cash’s potential involvement in the laundering of billions of dollars seized in cyberattacks, particularly those associated with North Korea’s Lazarus Group, have resulted in its blacklisting by the US Treasury and its OFAC department since 2022.
Nevertheless, the crypto aggregator continues to be operational and accessible, despite the imposition of sanctions, according to the ruling. This implies that sanctioned individuals can continue to access the platform, despite the Treasury’s efforts to restrict their access.
The court recommended that the primary objective be to target the specific individuals or entities that are using the software for unlawful activities rather than the technology itself.
“Maybe lawmakers will revise the IEEPA, which was passed during Carter’s administration, to include more up-to-date tech that attacks crypto-mixing programs. In the meantime, the court has decided that the privacy-enabling software code lines known as Tornado Cash’s immutable smart contracts are not the “property” of any foreign citizen or company and hence cannot be prohibited under IEEPA. The court also found that OFAC exceeded its power,” which was set by Congress.
In 2022, Joseph Van Loon and five other plaintiffs filed a lawsuit against Treasury Secretary Janet Yellen and OFAC Director Andrea Gacki, which gave rise to the ruling.
The plaintiffs, who utilized the platform for legitimate purposes but discovered their funds blocked subsequent to the sanction, contended that the Treasury’s action violated their rights and exceeded the department’s statutory authority.
In August 2023, a federal court in Texas dismissed the lawsuit, which was backed by Coinbase. The plaintiffs subsequently appealed the decision, and the Fifth Circuit Court of Appeals’ most recent ruling successfully overturned the lower court’s decision.
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