Key Points:
- A U.S. court overturned Tornado Cash sanctions with a ruling that the protocol’s immutable smart contracts are not “property” under the law.
- The ruling stemmed from a lawsuit arguing that the Treasury overstepped its authority by sanctioning software instead of a person or entity.
A U.S. court has overturned cryptocurrency mixing protocol Tornado Cash sanctions.
Read more: Crypto Mixer Tornado Cash Lawsuit Gets First to Win Since Sanctions
US Court Overturns Tornado Cash Sanctions
The ruling goes against the Treasury Department’s designation of Tornado Cash as a sanctioned entity and underlines the weakness of the current regulations with respect to decentralised systems.
The court decided that Tornado Cash smart contracts – autonomous, immutable lines of code deployed on the Ethereum blockchain – do not constitute “property” under U.S. law.
These contracts, designed to operate without human intervention, are accessible to anyone but cannot be owned or controlled. As such, the court ruled that the Office of Foreign Assets Control (OFAC) overstepped its authority by sanctioning the protocol.
In August 2022, OFAC sanctioned Tornado Cash, citing its alleged use by North Korean hackers to launder stolen cryptocurrency.
Ruling Signals Potential Shift in Privacy Tech Regulation
The Tornado Cash sanctions raised widespread controversy and encouraged Dutch authorities to arrest Tornado Cash developer Alexey Pertsev on charges of money laundering of $1.2 billion in illicit assets. Pertsev received a prison sentence of five years and four months in May 2023.
The court’s order comes after a lawsuit filed by a Tornado Cash user, Joseph Van Loon, and five other plaintiffs, arguing that the sanctions were not warranted.
They said the Treasury had overstepped its authority under the International Emergency Economic Powers Act, which enables the U.S. government to block “property” connected with foreign interests. They said Tornado Cash is software and thus does not come under that definition.
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