US sanctions against cryptocurrency mixer Tornado Cash were unlawful
Two years ago, the US government imposed far-reaching sanctions against the cryptocurrency mixer Tornado Cash. But it was not allowed to do so.
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An appeals court in the US has overturned the US government's sanctions against the cryptocurrency service Tornado Cash. This is the result of the ruling by the Court of Appeals for the Fifth Circuit, which has now been made public. The court acknowledged that the fears that illegal money laundering could take place via the service were "undoubtedly legitimate". But software cannot be sanctioned under the law, "unlike the malicious individuals and entities who misuse it".
Concerns in the crypto industry
Tornado Cash is a mixing service whose software combines and encrypts cryptocurrencies from thousands of addresses. The transactions are "mixed" to make tracking more difficult or impossible. Since it was founded five years ago, Tornado Cash is said to have laundered billions of US dollars worth of stolen cryptocurrency, including for criminals from North Korea. In 2022, the Office of Foreign Assets Control (OFAC), which is part of the US Treasury Department, imposed sanctions and froze all of Tornado Cash's US assets.
With this sanction, the US government has exceeded its powers, and the complainants are now right. According to Bloomberg, these include Coinbase, the cryptocurrency exchange feared that the move could damage the industry. In order to make the sanctions possible after all, the US Congress would have to update a law from 1977, the court now writes. Until then, the code of Tornado Cash is not "property" of a foreign person or organization and therefore cannot be sanctioned.
(mho)