In a landmark ruling, the U.S. District Court for the Western District of Texas has reversed an earlier judgment supporting sanctions on Tornado Cash, a popular cryptocurrency mixer.
The official document states, “The judgment of the District Court is reversed, and the cause is remanded to the District Court for further proceedings.”
Following the announcement, Tornado Cash’s native token, TORN, skyrocketed by 140%, jumping from $9.50 to over $23 at the time of reporting.
Tornado Cash faced sanctions in August 2022 when the U.S. Office of Foreign Assets Control (OFAC) designated it as a sanctioned entity. Authorities cited the platform’s alleged use by North Korea for laundering stolen cryptocurrencies, leading to cybercrime accusations.
Additionally, one of Tornado Cash’s developers, Alexey Pertsev, received a sentence exceeding five years on charges of money laundering.
In response, Tornado Cash user Joseph Van Loon and five other plaintiffs sued the Treasury, Secretary Janet Yellen, OFAC, and its Director Andrea Gacki. They argued that OFAC exceeded its authority by targeting Tornado Cash under the International Emergency Economic Powers Act (IEEPA).
At the heart of the legal challenge lies the interpretation of the term “property” under the IEEPA, which allows the President to block any property in which a foreign nation has an interest.
Plaintiffs contended that Tornado Cash, as software, does not qualify as a person or entity and thus cannot be treated as “property.”
Key Appeals Court Findings
In November, the Appeals Court sided with the plaintiffs, highlighting the immutable nature of Tornado Cash’s smart contracts as an exception to the IEEPA’s definition of property.
The ruling stated:
“Immutable smart contracts cannot be discarded, altered, or controlled, making them inaccessible to developers or anyone on the Ethereum blockchain.”
The court also clarified that while developers could disconnect mutable smart contracts, immutable ones operate independently and remain outside human control or influence.
The Appeals Court further explained that Tornado Cash’s immutable smart contracts remain accessible to anyone with internet access, making them non-“ownable” assets.
Although OFAC attempted to redefine property to include “contracts of any nature,” the court determined that immutable smart contracts lack the two-party agreement essential for classification as contracts.
“IEEPA grants significant power to regulate economic activity but does not extend to immutable technologies beyond human intervention,” the court stated.
The ruling sets a critical precedent for how blockchain technologies, particularly immutable smart contracts, are treated under U.S. law. It raises questions about the limits of government authority in sanctioning decentralized platforms and highlights the growing tension between emerging technologies and existing regulatory frameworks.
Conclusion: A Victory for Decentralization
This court decision marks a significant victory for the crypto community, reinforcing the unique nature of decentralized systems like Tornado Cash. It underscores the challenges regulators face in addressing technologies that operate outside traditional definitions of ownership and control.
As the case returns to the District Court, it could pave the way for clearer regulatory boundaries in the cryptocurrency and blockchain ecosystem.