Tornado Cash has won a critical legal battle after a US appeals court found that the US Treasury’s Office of Foreign Assets Control (OFAC) exceeded its power in sanctioning the platform’s immutable smart contracts. The Fifth Circuit Court of Appeals ruled on November 26 that Tornado Cash’s smart contracts—lines of code meant to operate autonomously—cannot be considered “property” under federal law. As a result, they are not subject to the Treasury’s 2022 sanctions.
The court observed that the International Emergency Economic Powers Act (IEEPA) does not apply to Tornado Cash’s smart contracts, which function autonomously and have permanent coding. The court concluded that the IEEPA only applies to property or services that the president can own or control, despite this statute empowering the president to regulate financial transactions and issue punishments. Tornado Cash’s smart contracts, however, do not match these requirements.
This verdict is a big defeat for the Treasury, which sanctioned Tornado Cash in 2022 after charging the platform with facilitating over $7 billion in criminal transactions. The court’s judgment gives Tornado Cash users a partial success after they appealed the sanctions, claiming they were illegally imposed on the platform’s smart contracts.
Following the verdict, the price of Tornado Cash’s native token, TORN, skyrocketed, increasing by over 900% to a two-year high. While the verdict removes these specific smart contracts off the United States’ sanctions list, it does not necessarily shield other aspects of Tornado Cash or related protocols from future regulatory scrutiny.
Supporters of Tornado Cash, including Coinbase and the legal team backing the case, view this triumph as a watershed moment for open-source technology and the broader cryptocurrency community. The ruling now forces the Treasury to reevaluate its approach to regulating decentralized protocols that do not require central supervision.
