A federal appeals court on Tuesday handed the cryptocurrency sector a major victory, overturning U.S. Treasury Department sanctions imposed on cryptocurrency mixer Tornado Cash. The court ruled that privacy tools such as Tornado Cash, built on the Ethereum blockchain, are exempt from Treasury Department sanctions.
In addition, the court found that the government did not have adequate mechanisms to classify the service’s underlying technology as a sanctioned entity, even after a North Korean hacking group used it to launder more than $455 million.
On Tuesday, a three-judge panel from the 5th U.S. Circuit Court of Appeals in New Orleans sided with Tornado Cash. The panel ruled that software used to hide ownership of digital assets is not covered by US sanctions laws. However, the ruling does not protect individuals and groups who misuse it.
TORN ‘s management token rose 435% after the ruling to about $19.06 as of 11 p.m. Eastern time.
The decision resolves a lively debate over the government’s authority to sanction technology linked to criminal activity. It overturns a district court ruling in August that supported the government’s stance against the “infamous” cryptocurrency mixing service.
District Judge Don Willett acknowledged the government’s concerns about money laundering by foreign entities through software. However, he clarified that federal law allows the Treasury to target property, not the software itself.
“It may be that Congress will update (the law) passed during the Carter administration to attack modern technologies such as cryptocurrency mixing software,” Willett said. “Until then, we believe that Tornado Cash’s immutable smart contracts (lines of software code that enable privacy) are not ‘owned’ by a foreigner or entity, which means they cannot be blocked.”
