Court overturns US sanctions against cryptocurrency mixer Tornado Cash

The US Treasury Department has accused Tornado Cash of facilitating the laundering of over USD 7 billion for hackers in North Korean and other cybercriminals. According to Reuters, the ruling from the 5th US Circuit Court of Appeals in New Orleans favoured six Tornado Cash users who, with support from the cryptocurrency exchange Coinbase, had filed a lawsuit contesting the sanctions.

Crypto tools or threats?

Cryptocurrency mixers like Tornado Cash are software tools designed to anonymise digital transactions by obscuring the origins or ownership of assets. The Treasury’s Office of Foreign Assets Control (OFAC) had sanctioned Tornado Cash under the International Emergency Economic Powers Act, claiming it was involved in laundering proceeds from cybercrimes, including USD 455 million stolen by the North Korea-linked Lazarus Group.

Some argued that federal law allows OFAC to regulate property, but Tornado Cash’s smart contracts—self-executing code for mixing cryptocurrencies—do not qualify as property. These contracts, which operate independently and cannot be altered or controlled, provide enhanced privacy by pooling and shuffling users' funds.

A US appeals court has ruled that the US Treasury Department exceeded its authority when it sanctioned the cryptocurrency mixer Tornado Cash in 2022.

Others have acknowledged concerns about the risks posed by unregulated technology but stated that it is Congress’s responsibility to update the law, not the courts. The privacy-enabling design of Tornado Cash’s software prevents it from being legally classified as property.

The Treasury Department has not commented on the ruling. However, officials from Coinbase celebrated the decision as a historic win for crypto and the defense of liberty, warning that sanctioning entire technologies could stifle innovation and threaten privacy.

The case comes amidst broader legal scrutiny of Tornado Cash. In May, one of its developers was sentenced to prison in the Netherlands for money laundering. Additionally, founders were charged in the US with money laundering and sanctions violations.