US court rules against Tornado Cash sanctions, TORN cryptocurrency surges 140%

A U.S. District Court for the Western District of Texas has ordered that a previous court decision supporting sanctions on crypto mixer Tornado Cash be reversed. 

“It is ordered and adjudged that the judgment of the District Court is reversed, and the cause is remanded to the District Court for further proceedings,” the document said.

TORN, the crypto mixer’s native cryptocurrency, surged 140 % following the news — going from $9.5 to over $23 at the time of writing.

In August 2022, the Office of Foreign Assets Control designated Tornado Cash a sanctioned entity, citing North Korea’s use of the mixer to commit cybercrimes, such as laundering stolen cryptocurrencies. Its developer, Alexey Pertsev, was sentenced to over five years in prison for money laundering charges.

Following the sanction, Tornado Cash user Joseph Van Loon and five other plaintiffs sued the Treasury, Secretary Janet Yellen, OFAC and OFAC Director Andrea Gacki, claiming they overstepped their authority with the sanction. 

The concept at issue lies within the International Emergency Economic Powers Act, which gives the President the authority to block any “property” that a foreign country or a nation has an interest in.

While U.S. authorities have used the IEEPA to support their sanctions against Tornado Cash, the term “property,” which is linked to everything that may be the subject of ownership, has been debated.

Loon and the plaintiffs argued that Tornado Cash should not be sanctioned because it is software rather than a person or entity.

An Appeals Court ruling in November sides with the plaintiffs, stating that the immutable nature of Tornado Cash’s smart contracts makes the mixer an exception from the definition of “property” indicated by the IEEPA.

“In theory, should Tornado Cash developers choose to comply with sanctions on mutable smart contracts, those developers could disconnect those mutable smart contracts to make them inaccessible and unusable by anyone on the Ethereum blockchain,” the Appeals Court ruling said. “But they cannot discard, change, disconnect, or control smart contracts that are immutable—like the ones currently listed on OFAC’s SDN list and at issue in this appeal.” 

Tornado Cash described as not "ownable"

The court explained that even with OFAC sanctions, Tornado Cash’s immutable smart contracts remain accessible to anyone with an internet connection, thus making it not “ownable.”

While OFAC expanded the definition of a property to include “contracts of any nature,” the Appeals Court found that immutable contracts are not actual contracts that require an agreement between two or more parties.

“Immutable smart contracts have only one party in play,” the filing said. It added that Tornado Cash, free of any human effort in execution, also does not qualify as a service, as made in another argument by the Treasury Department.

“IEEPA grants the President broad powers to regulate a variety of economic transactions, but its language is not limitless,” the filing said. “Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane.”