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The U.S. Court of Appeals for the Fifth Circuit has overturned the sanctions imposed on Tornado Cash by the U.S. government. This decision reverses the earlier judgment by the District Court, marking a significant shift in the legal status of the cryptocurrency mixer.
In its filing, the appellate court stated, “It is ordered and adjudged that the judgment of the District Court is reversed, and the cause is remanded to the United States Court of Appeals District Court for further proceedings in accordance with the opinion of this Court.”
Tornado Cash faced sanctions from the Treasury Department’s Office of Foreign Asset Control (OFAC) due to allegations that hackers associated with North Korea used the platform to launder stolen funds. However, the court found that the sanctions failed to properly define “property,” which was central to OFAC’s justification.
Tornado Cash operates as a crypto mixer, allowing users to anonymize the origins of their digital assets. By pooling funds from various sources, the platform ensures privacy while returning the same value users initially deposited.
The court ruled that Tornado Cash’s smart contracts do not meet the criteria for “property” or “services” under OFAC’s definitions. The judgment noted, “Contrary to the Department’s arguments, the immutable smart contracts are not services. So even when we consider OFAC’s regulatory definitions, the immutable smart contracts are not property because they are not ownable, not contracts, and not services.”
This interpretation undermined the legal foundation of the sanctions, resulting in their reversal.