Sanctions imposed by the United States Office of Foreign Assets Control (OFAC) on the decentralized Ethereum (ETH) cryptocurrrency mixer Tornado Cash (TORN) have been ruled illegal by a judge.
According to a three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals, the United States Treasury Department acted outside its authority when it imposed sanctions on Tornado Cash. The sanctions were imposed after North Korean state-backed hackers used the service to launder illicitly-gotten funds, as well as other criminals.
A cryptocurrency mixer is a service that aims to prevent the tracking of digital assets on a blockchain, since those assets can usually be easily tracked from one wallet to another by anyone making use of just public data.
The details
The ruling, dated Nov. 26, establishes that decentralized smart contracts outside anyone’s control cannot constitute property and cannot be hit with sanctions. The judges recognized “the real-world downsides of certain uncontrollable technology falling outside of OFAC’s sanctioning authority.”
The lawsuit was filed by six Tornado Cash users with the financial backing of the United States publicly-traded cryptocurrency exchange Coinbase. The ruling also raises issue with an attempt at committing an unlawful action:
“We decline the Department’s invitation to judicial lawmaking—revising Congress’s handiwork under the guise of interpreting it. Legislating is Congress’s job—and Congress’s alone.”
The sanctions, imposed back in 2022, also had a limited impact on the service since — due to its decentralized nature — no government agency can actually halt the service. By late July 2024, the service had already garnered almost $2 billion worth of deposits, despite the OFAC sanctions.
Market data indicates that at the time of writing Tornado Cash is trading over 400% up, priced at $18.26 after trading under $3.6 24 hours ago. The token’s volume also skyrocketed by well over 21,300% to its current value of nearly $14.5 million.
The ruling follows September reports that the hackers that siphoned millions from the WazirX Indian cryptocurrency exchange moved about $6.5 million worth of Ethereum stolen from the platform.
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