Crypto Mixer Tornado Cash Lawsuit Gets First to Win Since Sanctions

Key Points:

• A U.S. appeals court ruled that the Treasury Department overstepped by sanctioning crypto mixer Tornado Cash.
• The Treasury accused Tornado Cash of laundering over $7 billion, including funds linked to North Korea.

A U.S. federal appeals court had ruled that the Treasury Department overstepped its authority when it sanctioned crypto mixer Tornado Cash, a tool accused of facilitating illicit transactions.

Read more: Tornado Cash Developer Alexey Pertsev Sentenced To 64 Months In Prison    

Court Strikes Down Treasury Sanctions on Crypto Mixer Tornado Cash

The 5th Circuit Court of Appeals reversed the lower court's decision by ruling that Tornado Cash's immutable smart contracts—self-executing code that cannot be changed or owned—are not "property" under U.S. law.

The case originated from the Treasury in 2022, putting into place a designation declaring that Tornado Cash was a Sanctioned Entity, indicating claims of laundering more than $7 billion in virtual currency, including $455 million connected with the Lazarus Group belonging to North Korea. Further steps were taken by adding to the Specially Designated Nationals list 44 smart contract addresses associated with Tornado Cash, leading to litigation launched by six Tornado Cash users on the support of Coinbase.

The court's ruling explained that immutable smart contracts, which are generated through a decentralized "trusted setup ceremony," cannot be considered property for the purposes of the IEEPA.

Circuit Judge Don Willett acknowledged legitimate concerns by the government about the misuse of cryptocurrency but emphasized that federal law restricts the Treasury's authority to act against tangible or controllable property.

Tornado Cash Sees Resurgence Despite Regulatory Crackdown

That ruling has been hailed by privacy advocates and blockchain developers alike as a win that provides clearer guidance for building decentralized tools. But the Treasury has issued warnings over the danger of crypto mixers facilitating illicit activity actors, in particular.

Crypto mixer Tornado Cash, which saw monthly deposits fall by more than 90% following the sanctions, has seen a rebound in 2024 with over $1.8 billion in deposits received in the first half of the year, according to data from Flipside Crypto cited by Bloomberg.