US Court of Appeals overturns sanctions against Tornado Cash

On November 27, Coinbase Chief Legal Officer Paul Grewal announced a landmark decision from the Fifth Circuit Court of Appeals that overturned the US Treasury Department’s sanctions against immutable Tornado Cash smart contracts.

Case details

In August 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) designated Tornado Cash, banning its use of the platform. Authorities alleged that the service was used to finance North Korea’s nuclear weapons program.

However, the court ruled:

• Treasury’s actions exceeded the authorityof the Emergency Economic Powers Act (IEEPA).
• Tornado Cash smart contracts are not propertyand do not fall within the traditional definitions of contracts or services.
• The department had no basis to authorize smart contracts under IEEPA.

Value of the decision

IEEPA, passed in 1977, gives the US President the authority to restrict financial transactions during emergencies. However, the court clarified that smart contracts, which are autonomous code, cannot be classified as sanctioned property.

Results

The decision overturns a lower court ruling and calls into question the legitimacy of the Treasury Department’s actions regarding decentralized technologies. This precedent could significantly influence future regulatory actions in the cryptocurrency space.