US court overturns sanctions against Tornado Cash: everything you need to know

The cryptocurrency sector, currently valued at $3.31 trillion (approximately Rs 2,79,67,613 crore), remains a niche market attempting to establish its place in the global economy. Governments around the world are still navigating the complexities of regulating crypto activities. Tornado Cash, a crypto mixer, has faced significant scrutiny in recent months due to its role in obscuring transaction trails, making it nearly impossible for victims of crypto scams and money laundering to recover funds.

This week, a US federal court overturned the 2022 sanctions tornado cashThe Fifth Circuit Court in New Orleans ruled that immutable smart contracts do not qualify as property, making existing laws inapplicable to ban the platform.

understanding the decision

In 2022, Tornado Cash faced sanctions for allegedly facilitating the laundering of billions of dollars in cryptocurrencies. This decision was later challenged by six users of the platform with support from Coinbase.

according to cyberscoopThe plaintiffs argued that the smart contracts underlying Tornado Cash are not assets owned by the platform. As a result, these contracts cannot be sanctioned under existing laws, which allow sanctioning on assets but not on technology.

“We believe that Tornado Cash’s immutable smart contracts (lines of privacy-enabling software code) are not the “property” of any foreign national or entity, meaning they cannot be blocked under IEEPA, and OFAC has violated his congressionally defined rights,” official court document Said.

The latest ruling from a New Orleans court acknowledges that restrictions against crypto mixers lack a legal basis. Responding to the decision, Coinbase Chief Legal Officer Paul Grewal called it a victory for ‘privacy’.

“These smart contracts should now be removed from the sanctions list and US persons will once again be allowed to use this privacy-protecting protocol. No one wants criminals using crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not authorized by Congress,” Grewal posted on X.

A closer look at Tornado Cash’s legal struggle

Tornado Cash, a crypto mixer, allows users to make private financial transactions by swapping their cryptocurrency tokens for others of similar value within a shared pool. This process ensures anonymity but is often exploited by hackers and money launderers to obscure transaction history and avoid detection by law enforcement agencies.

In 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions against Tornado Cash, citing its alleged role in the laundering of more than $7 billion (roughly Rs. 62,861 crores). Reuters report Said. According to OFAC, notorious hackers from North Korea’s Lazarus Group also used Tornado Cash to steal crypto and make off with over $455 million (roughly Rs. 3,844 crores) from the hack.

The platform was blacklisted in the US, leading to its co-creator, Alexey Pertsev, being arrested in the Netherlands. Ahead of his trial in March, Pertsev was released under supervision after spending eight months in custody. In May, he was sentenced to 64 months in prison for money laundering.

Members of the Web3 community criticized Pertsev’s arrest, saying that authorities were trying to curb financial privacy and freedom by suppressing services like Tornado Cash. For now, it is unclear whether the latest ruling in favor of Tornado Cash will have an impact on Pertsev’s position.