U.S. Court Rules Against Treasury in Tornado Cash Sanctions Case
In a landmark decision, the U.S. District Court for the Western District of Texas has ruled that the U.S. Treasury overstepped its authority by sanctioning the decentralized crypto mixer Tornado Cash. This ruling, delivered on Tuesday, marks a significant setback for the Treasury’s regulatory efforts concerning blockchain technology and smart contracts.
Background of the Case
The controversy began when the Treasury’s Office of Foreign Assets Control (OFAC) placed Tornado Cash and its associated addresses on the Specially Designated Nationals (SDN) list in August 2022. The sanctions were imposed citing the platform’s alleged involvement in laundering approximately $455 million, which was purportedly linked to the North Korean hacker group, Lazarus Group.
Tornado Cash, known for its role in the Ethereum blockchain, allows users to enhance their transaction privacy by pooling funds to obscure the details of individual transactions. While it is designed to protect user privacy, it has also been criticized for facilitating illicit activities by malicious actors.
Details of the Ruling
The court’s decision highlighted that Tornado Cash’s immutable smart contracts do not qualify as “property” under the International Emergency Economic Powers Act (IEEPA), which limits the scope of what the government can regulate. The ruling emphasized that these smart contracts, being autonomous and unchangeable, are not capable of being owned, thus falling outside the current regulatory frameworks intended to control physical or tangible assets.
Following the court’s decision, the native token of Tornado Cash, TORN, experienced a significant surge in its value, climbing to nearly $23.32, which marks an increase of over 200% by Wednesday morning, as per data from CoinGecko.
Implications of the Ruling
This ruling is particularly noteworthy as it represents the second time the Treasury has faced defeat in its attempts to regulate similar technologies. Previously, in November, the U.S. Fifth Circuit Court also ruled that the Treasury had exceeded its authority with similar sanctions on immutable smart contracts.
The court’s decision underscores the challenges regulatory bodies face in applying traditional laws to new and rapidly evolving technologies such as blockchain and decentralized platforms. It also sets a precedent that could influence how open-source software and digital assets are treated under U.S. law, particularly concerning neutrality and ownership.
The case has now been remanded back to the district court for further proceedings, based on the interpretations and precedents set by the Texas court.
Continued Legal Challenges
Despite this victory for Tornado Cash in the federal court, challenges continue as the platform and its developers remain under scrutiny. In a separate case in New York, the court refused to dismiss money laundering charges against Tornado Cash co-founder Roman Storm last September. Storm is accused of operating an unlicensed money transmission business, facilitating sanctions evasion and laundering activities through the platform.
Additionally, developer Alexey Pertsev faces charges in the Netherlands, where he is accused of laundering $1.2 billion through Tornado Cash, highlighting the ongoing legal and ethical complexities surrounding crypto platforms and their uses.
This case is a critical juncture for the crypto industry, as it navigates the fine line between innovation and regulation. For more insights into how blockchain technology is reshaping the legal landscape, visit our detailed analysis on Blockchain Democracy in the UK and explore the broader implications of these technologies in various sectors.
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