Tornado Cash has won a major court decision cheered by cryptocurrency brethren, software developers, hackers and money launderers from Texas to Pyongyang.
On November 26, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of six users of Ethereum-based Tornado Cash, a ‘coin mixing’ service that allows users to obfuscate the digital traces of their ETH tokens.
The appeal follows sanctions imposed on Tornado Cash in August 2022 by the Treasury Department’s Office of Foreign Assets Control (OFAC). OFAC accused the mixer of helping launder billions of dollars in illicit proceeds for criminals such as North Korea’s notorious Lazarus Group. .
Six Tornado Cash users alleged that the inclusion of Tornado Cash assets, including the service’s smart contracts, on the Specially Designated Nationals and Blockers (SDN) list exceeds the authority granted to OFAC under the International Emergency Economic Powers Act. He objected to the sanctions, claiming that he had done so. IEEPA). This appeal was dismissed by the federal court, but this dismissal has now been reversed by the Fifth Circuit, granting plaintiff’s motion for partial summary judgment.
The court ruled that OFAC’s definition of ‘property’ does not apply to smart contracts that Tornado Cash’s administrator does not need because they “cannot be owned.” Because OFAC requires property to be in possession, “immutable smart contracts are outside the scope of OFAC’s ability to block.”
The court also rejected OFAC’s argument that Tornado Cash “benefits from and has an interest in smart contracts.” The logic here is that some of Tornado Cash’s intermediaries and TORN token holders of the service can receive fees, but not the services themselves or the developers behind the smart contracts.
Contract law requires an agreement between two or more parties, but Tornado Cash’s smart contracts involve “only one party,” and the other end of the transaction is “software code,” meaning there is “no party to contract with.” The decision by Tornado Cash developers to run the service’s smart contracts “independently and autonomously” means the service “does not own or control them, and cannot control them.”
It’s worth noting that the 5th Circuit is notorious for using extremely questionable legal arguments to support every challenge to anything the federal government does/says/considers. The deeply conservative U.S. Supreme Court has had to reject numerous Fifth Circuit decisions on legal grounds that did not survive cursory scrutiny.
That said, the 5th Circuit ruling follows the U.S. Supreme Court’s rejection this summer of so-called “Chevron deference,” which previously gave federal agencies broad leeway to interpret how Congress would act within each report . Armed with newfound freedom to challenge federal agencies, we should expect to see many more Fifth Circuit rulings of this type.
So cryptocurrency businesses that haven’t yet registered a shell company or rented a mailbox in the Lone Star State can assert jurisdiction and appeal their court losses to the 5th Circuit. Seriously, what are you waiting for?
anyone interested
The ruling caused a significant surge in the fiat price of the TORN token, which surged nearly nine-fold to nearly $35 immediately after the ruling. The token quickly gave up most of these gains, but is currently hovering around $20, which is still ~6x where it was on November 25th.
The Crypto Brothers were popping champagne corks before the ink was even dry following the Fifth Circuit’s ruling. Paul Grewal, chief legal officer of the Coinbase (NASDAQ: COIN) exchange, called the ruling “a historic victory for everyone who cares about cryptocurrencies and protecting freedom.” (Coinbase helped fund the challenge, and two of the plaintiffs worked for the exchange.)
The Fifth Circuit ruling narrowly focused on smart contracts without administrative keys. That means Treasury/OFAC’s lawsuit over other aspects of Tornado Cash’s operations remains intact (although it will now be reexamined by a lower court using the Fifth Circuit’s preferred view of what the law should be). applied).
But the Treasury Department is expected to appoint a new secretary in January, Scott Bessent, who claimed this summer to be “excited” about President-elect Donald Trump’s embrace of cryptocurrencies. It is not yet known what impact this change will have on existing litigation against digital asset operators.
For example, federal criminal charges filed by the Department of Justice (DOJ) in August 2023 against Tornado Cash developers Roman Storm and Roman Semenov are moving forward quickly. Storm is currently in custody in the United States, while Semenov is in Russia and is believed to be out of DOJ’s reach.
Storm’s trial was recently postponed until April 2025. Just before the Fifth Circuit ruled, federal prosecutors filed a superseding indictment against Storm, seeking forfeiture of his two homes in Washington state and a Tesla SUV. With ill-gotten gains.
Fellow Tornado Cash developer Alexey Pertsev is awaiting an appeal of the 64-month sentence imposed by a Dutch court this spring after pleading guilty to Pertsev on money laundering charges. Last month, Pertsev tweeted that a court had rejected his request to be released from detention pending an appeal. Unlike Storm, who used the Fifth Circuit ruling to appeal for more legal funding, Pertsev has yet to tweet his opinion on the development.
Pertsev must have considered himself lucky, considering the recent sentence handed down to Roman Sterlingov, the former operator of the Bitcoin Fog mixing service. Sterlingloff, who was convicted of money laundering in the District of Columbia this spring, was sentenced Nov. 8 to 12.5 years in prison. “It sends a clear message that anyone who helps criminals make online payments for their illegal activities will face severe punishment,” prosecutors said. .”
The more it changes…
Hackers responsible for some major cryptocurrency thefts are also celebrating the Fifth Circuit’s ruling. Just days before the ruling, seven Democratic congressmen wrote a letter to Treasury officials questioning why Tornado Cash “remains online and continues to function as a decentralized smart contract.”
The letter claims that while Tornado Cash’s trading volume fell by up to 85% following OFAC sanctions, the mixer experienced a “resurgence” in 2024 with its fund volume increasing by 45% year-on-year. In other words, “There is absolutely no chance that this problem will go away anytime soon.”
A recent Global Ledger report found that “more than 60%” of ETH flowing through Tornado Cash this year was considered ‘high risk’ and 56% came directly from hacks. Among the most notable crimes for which Tornado Cash helped drive a getaway car is this summer’s hack of the WazirX exchange and the Heco Bridge exploit in late 2023. The total value of ETH laundered in these two thefts amounts to $401 million.
Crypto brothers, keep striking for ‘freedom’.
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