Appeals Court Strikes Down Tornado Cash Sanctions

A U.S. Federal Appeals Court ruled that the Treasury Department’s Office of Foreign Assets Control (OFAC) overstepped its authority in sanctioning Tornado Cash, a decentralized crypto mixer.

What's the scoop?

• The court stated that Tornado Cash’s smart contracts—immutable lines of code—do not qualify as "property" under the International Emergency Economic Powers Act (IEEPA) and cannot be sanctioned.
• This decision reverses a 2022 district court ruling that had upheld OFAC’s designation of Tornado Cash as a restricted entity. OFAC had sanctioned Tornado Cash in August 2022, alleging its use in laundering stolen funds, including by North Korea’s Lazarus Group.
• The new appeals court ruling argued that Tornado Cash, as decentralized software, remains accessible to anyone online and does not meet the criteria for regulatory targeting as an entity or individual.
• The case was backed by Coinbase and other plaintiffs who argued the sanctions were a regulatory overreach.

Bankless take

For regulators, this decision underscores the need for updated legislative frameworks that consider the unique characteristics of decentralized technologies. For crypto builders, the decision is a reminder that innovation remains a contested space where legal clarity is still evolving.

In the meantime, major questions linger. Can U.S. users already start using Tornado Cash again? Can developers safely fork its code? Yet the biggest uncertainties revolve around the ongoing legal cases against Tornado’s creators, and the outcomes of these cases will shape the privacy landscape of crypto for years to come.