OFAC ‘overstepped’ on Tornado Cash sanctions, court orders reversal
The Fifth Circuit Court of Appeals has ordered the US Treasury’s Office of Foreign Assets Control (OFAC) to remove addresses linked to Tornado Cash from its list of Specially Designated National and Blocked Persons (SDN).
The controversial crypto mixing service was banned by OFAC in August 2022, following its widespread use by hackers, including North Korea’s Lazarus Group, to launder stolen crypto.
Read more: Treasury cited only three examples of illicit Tornado Cash use, says judge
Tornado Cash allows users to deposit fixed amounts of tokens into shared privacy pools, before using a cryptographic proof of their deposit to withdraw to a new, untraceable address.
Confirming arguments widely held across the crypto and open-source community, the court stated that “Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the ‘property’ of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.”
Shortly after the sanctions were originally announced, Tornado Cash developer Alexey Pertsev was arrested in the Netherlands, sparking free speech protests.
Since then, the project’s other two developers, Roman Storm, and Roman Semenov, were hit with money laundering charges in the US.
After many crypto applications began blocking addresses that had used Tornado Cash (or even been “griefed” by being sent tainted tokens), usage of the mixer dropped off.
While hackers continued to use the protocol to obscure their trail, attention waned on the project’s governance, eventually leading to a hijack via a hidden upgrade.
Tornado Cash’s governance token, TORN, jumped over 200% on the news of the court’s decision, rising from $9 to approximately $25 at the time of writing.
Read more: Explainer: What to know about crypto mixer Tornado Cash
While Tornado Cash has been used by hackers and scammers to obscure the trail of stolen funds, many point to its legitimate use as a privacy tool.
Blockchains as public ledgers allow for transparency, which can be valuable in cases such as verifying an exchange’s reserves, but the downside for individuals (without using mixers such as Tornado Cash) is a sacrifice of personal financial privacy.
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