Court Rules Against Tornado Cash Sanctions, Advocates Celebrate Privacy Victory

In a landmark decision, the U.S. Fifth Circuit Court of Appeals has declared the Treasury’s sanctions against Tornado Cash smart contracts unlawful. This ruling is seen as a major win for supporters of cryptocurrency privacy and open-source innovation. Paul Grewal, Coinbase’s chief legal officer, described the verdict as a “historic win for crypto and all who care about defending liberty.”

Grewal highlighted the court’s decision on social media platform X, stating, “These smart contracts must now be removed from the sanctions list, and US persons will once again be allowed to use this privacy-protecting protocol.”

The court found that Tornado Cash’s immutable smart contracts, being open-source and ownerless, do not qualify as “property” under federal law. This interpretation restricts the Treasury’s authority to impose sanctions on such technology.

Background on Tornado Cash Sanctions

The controversy began in August 2022 when the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a cryptocurrency mixer. Authorities alleged it had been used to launder over $7 billion in virtual currency since 2019, including $455 million linked to North Korea’s Lazarus Group. The sanctions prohibited U.S. persons from interacting with Tornado Cash, aiming to curb its use in illicit activities.

However, the Fifth Circuit ruled that these measures exceeded the Treasury’s legal boundaries. Grewal elaborated, “No one wants criminals to use crypto protocols, but blocking open-source technology entirely because a small portion of users are bad actors is not what Congress authorized.”

This decision not only restricts the government’s reach but also strengthens the case for fairer crypto regulations. Grewal emphasized the need for nuanced measures that safeguard privacy without stifling innovation.

Coinbase, which played a key role in challenging the sanctions, reaffirmed its dedication to advancing clear and balanced regulations. The ruling underscores the importance of protecting technological progress while maintaining a secure crypto ecosystem.