A Texas court has overturned the sanctions imposed on cryptocurrency mixer Tornado Cash over its role in facilitating money laundering.
The US District Court for the Western District of Texas reversed sanctions imposed on Tornado Cash by the Treasury Department’s Office of Foreign Assets Control (OFAC), concluding that its initial judgment was not in accordance with legal standards. A January 21 filing said:
“It is ordered and adjudged that the judgment of the district court is reversed, and the cause is remanded to the district court for further proceedings in accordance with the opinion of this court.”
The latest order follows a November 26 ruling by the court where it determined that OFAC had exceeded its authority under the International Emergency Economic Powers Act (IEEPA).
The court found that Tornado Cash’s immutable smart contracts did not qualify as “property” subject to seizure and that the sanctions were improperly applied to a decentralised protocol.
Six Tornado Cash users had filed the appeal against the OFAC sanctions in April 2023 in a bid to overturn the sanctions on the crypto mixer.
They claimed Tornado Cash’s smart contracts were rendered immutable through a “trusted setup ceremony” conducted in May 2020.
This cryptographic process involved contributions from over 1,000 participants to finalise the parameters, ensuring the contracts could not be updated or modified.
Subsequently, governance over the protocol was transferred to the Tornado Cash community via the TORN token.
In its November ruling, the court rejected the OFAC’s interpretation of IEEPA, adding that the OFAC “overstepped its congressionally defined authority,” adding that “legislating is Congress’s job—and Congress’s alone.”
Legal history of Tornado Cash
Tornado Cash was sanctioned in 2022 after US regulators found that the platform was used by nefarious North Korean state-backed hacking group Lazarus to launder roughly $455 million worth of stolen assets.
Investigations following the sanctions led to the arrest of Tornado Cash co-founder Roman Storm in August 2023, while developers Alexey Pertsev and Roman Semenov were taken into custody.
The three were accused of criminal conspiracy and money laundering exceeding $7 billion.
In May 2024, Pertsev was found guilty of laundering $1.2 billion and sentenced to five years in prison. His request for bail was denied as he appealed the verdict.
As of publication time, Pretsev remains in custody on money laundering charges.
Over the years, Pertsev and other Tornado Cash developers have garnered support from prominent names like Ethereum co-founder Vitalik Buterin, who donated funds for their legal defence.
Advocacy groups like Coin Center, the Blockchain Association, and the DeFi Education Fund have also backed them, while crypto exchange Coinbase has financially backed the case against the Treasury Department’s action.
Bad actors continue using Tornado Cash
Despite the sanctions, Tornado Cash remains a preferred channel for bad actors to launder stolen loot.
According to Glocal Ledger, over $552 million in illicit loot had been funnelled via the privacy mixer between January and November 2024.
In November last year, several members of the US House of Representatives raised concerns over the platform’s continued use by criminals, urging the Treasury to take immediate action.
The post Crypto mixer Tornado Cash cleared of OFAC sanctions by US Court appeared first on Invezz
