US court overturns sanctions on 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 that is aiming to carve out 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 come under heavy criticism in recent months for its role in obscuring transaction trails, making recovering funds nearly impossible for victims of crypto scams and money laundering.

This week, a US federal court overturned the 2022 sanctions against Tornado Cash. The Fifth Circuit Court in New Orleans ruled that immutable smart contracts do not qualify as property, meaning existing laws do not apply to imposing sanctions on the platform.

Understand the pronunciation

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

According to CyberScoopthe plaintiffs argued that Tornado Cash’s underlying smart contracts do not constitute property of the platform. Consequently, these contracts cannot be sanctioned under current law, which allows sanctions on property but not on technology.

“We believe that Tornado Cash’s immutable smart contracts (the lines of software code that enable privacy) are not ‘owned’ by any foreign national or entity, meaning they cannot be blocked under IEEPA, and that OFAC has exceeded its congressionally defined authority,” the spokesperson said. official court document said.

The latest ruling from the court in New Orleans recognizes that the sanctions against the crypto mixer have no legal basis. Commenting on the decision, Coinbase’s Chief Legal Officer, Paul Grewal, described it as a victory for “privacy.”

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

A closer look at Tornado Cash’s legal battle

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

In 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, citing its alleged role in laundering more than $7 billion (approximately Rs. 62,861 crore), a Reuters reports this said. According to OFAC, the infamous North Korean hackers from the Lazarus Group also used Tornado Cash to launder more than $455 million (approximately Rs. 3,844 crore) from crypto thefts and hacks.

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

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