US Court Overturns Tornado Cash Sanctions in Major Crypto Privacy Win

The Fifth Circuit Court of Appeals has overturned sanctions on the Tornado Cash cryptocurrency mixing protocol, marking a potential shift toward regulations that support privacy-focused technologies.

On January 21, a U.S. Court issued its ruling in a case brought by six individuals challenging sanctions imposed on Tornado Cash. The plaintiffs argued that the sanctions violated the Administrative Procedure Act. The appeal, filed in November 2024, contended that the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its legal powers when it imposed sanctions on Tornado Cash in 2022.

The court determined that the OFAC had acted beyond its authority by targeting Tornado Cash’s immutable smart contracts, which are decentralized and cannot be owned or controlled by any entity.

US Court Overturns Tornado Cash Sanctions in Major Crypto Privacy Win

“We hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority,” the filing stated.

In August 2022, the OFAC imposed sanctions on Tornado Cash, alleging the protocol was used to facilitate money laundering. According to the agency, the North Korean-linked Lazarus Group reportedly laundered over $455 million in stolen digital assets through the platform.

The sanctions on Tornado Cash resulted in the arrest of developer Alexey Pertsev. In May 2024, Pertsev was convicted of money laundering by the s-Hertogenbosch Court of Appeal in the Netherlands. The court found him guilty of laundering $1.2 billion in illicit funds using the protocol, and he was sentenced to over five years in prison.

Subsequently, during Pertsev’s trial in March 2024, the developer contended that he should not be held responsible for the illicit activities conducted by users of Tornado Cash. However, the court dismissed his argument, asserting that Pertsev and the other creators of the protocol could have taken further steps to prevent its misuse.

Despite the legal victory for Tornado Cash, Pertsev remains in custody, continuing to face charges related to his alleged money laundering-related charges.

In the meantime, industry experts are anticipating further progress in Pertsev’s legal battle, following the recent reversal of the OFAC sanctions.

Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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