U.S. Texas Court revokes the sanctions set against Tornado Cash since 2022

A court filing from the U.S. District Court for the Western District of Texas announced the reversal of sanctions against the crypto-mixing protocol Tornado Cash. The court highlighted the timely appeal filed by Tornado Cash users against the sanctions, leading to the dismissal. 

CoinMarketCap data revealed that Tornado Cash’s TORN surged by over 180% after the ruling, trading at a little over $22 at the time of writing. The coin’s 24-hour trading volume has also surged significantly by over 5,500%, reaching over $8 million. 

The Office of Foreign Assets Control (OFAC) under the U.S. Treasury Department issued the sanctions in 2022, charging the protocol with laundering over $455 million in crypto for the North Korean hacking group Lazarus Group. OFAC also pointed out that other cybercriminals leveraged the protocol’s services to launder their illicit money.

The Treasury Department announced in August 2022 that over $7 billion had passed through Tornado Cash since its launch in 2019. A Chainalysis report from 2022 also outlined that 30% of the funds that passed through the mixing protocol were from illegal businesses. The report still confirmed that the protocol was created as a practical solution for crypto users who valued their privacy. 

Crypto trader Ash Crypto speculated that the court ruling indicated that crypto was winning under Trump’s administration. The crypto community has been betting on looser regulations under the Trump pro-crypto administration, as the president promised during his campaign last year. 

Appeals Court says the Treasury Department overstepped its authority

In November last year, the U.S. Fifth Circuit Court of Appeals in New Orleans ruled that the U.S. Treasury Department had overstepped its authority by sanctioning Tornado Cash. The ruling argued that OFAC’s actions were based on the smart contracts issued by Tornado Cash, which were the property of the protocol.

The three-judge panel highlighted that owning the smart contracts was impossible, therefore nullifying OFAC’s basis for the sanctions. The judges also mentioned that smart contracts were not property according to the International Emergency Economic Powers Act (IEEPA). 

The court agreed with the appeal presented by the 6 Tornado Cash users, which argued that OFAC overreached its ‘statutory authority’ by blacklisting the whole protocol. “Sanctioning specific individuals abusing the software provided by Tornado Cash was more practical,” the plaintiffs suggested.

Coinbase’s Chief Legal Officer, Paul Grewal, applauded the court ruling on November 27, insisting that lifted sanctions would allow U.S. crypto users to leverage the Tornado Cash privacy software. Grewal also insisted that OFAC’s sanctions were unwarranted actions to deal with a few bad actors on the protocol.

The Coinbase chief legal officer further highlighted how the sanctions undermined open-source technology. The plaintiffs agreed in the appeal, mentioning that the sanctions had raised worry among privacy-preserving software developers. AlephZero’s president, Matthew Niemerg also contributed, saying that compliant privacy-preserving software would be crucial to future privacy protocols. 

Tornado Cash’s Pertsev remains in custody

❗️🔔 News update (22/01)

1️⃣ Texas court reverses sanctions on Tornado Cash, sparking a 140% surge in $TORN price. Despite this victory for privacy tech, developer Alexey Pertsev remains in custody on money laundering charges.

— BlockchainTim (@Blockchain_Tim_) January 22, 2025

The Tornado Cash developer, Alexey Pertsev, arrested in 2022 on money laundering charges, is still in custody despite the recent court ruling. Dutch authorities arrested Pertsev and Tornado Cash’s co-founder, Roman Storm, in 2022 after the U.S. enacted sanctions against the protocol. The Dutch authorities argued that Pertsev looked for a shortcut to finance illegal activities through the privacy protocol. 

A Dutch court found Pertsev guilty of laundering over $1.2 billion since Tornado Cash’s inception in May last year, sentencing him to five and a half years in prison. Pertsevs legal team had argued that the developer had no control over the users who leveraged Tornado Cash to conduct illegal transactions. Prosecutors countered, saying that Pertsev should have found better ways to prevent illicit actors from using the protocol. 

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