Texas Court Overturns Tornado Cash Sanctions, Challenging U.S. Crypto Regulation

A Texas district court recently ruled to overturn the Tornado Cash sanctions imposed by the U.S. Treasury Department.

The court found that the Treasury acted beyond its authority when it sanctioned Tornado Cash, accusing the platform of facilitating the laundering of over $7 billion for North Korean hackers and other malicious actors.

The Tornado Cash sanctions were issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which claimed that Tornado Cash was a critical tool for illicit groups like North Korea’s Lazarus Group to obscure stolen funds.

In response, Tornado Cash user Joseph Van Loon, along with five other plaintiffs, filed a lawsuit against the Treasury, Secretary Janet Yellen, OFAC, and OFAC Director Andrea Gacki.

They argued that the Tornado Cash sanctions were unlawful, challenging the interpretation of the International Emergency Economic Powers Act (IEEPA), which grants the U.S. president the power to block foreign property interests. The plaintiffs contended that the term “property” did not apply to Tornado Cash, a decentralized software rather than a person or entity.

The case sparked a major controversy in the industry as it touched on the line between compliance and privacy on the Internet, as the US Treasury Department targeted not a physical entity but a form of decentralized technology.

The US then arrested Tornado Cash co-founder Roman Storm and charged him with aiding money laundering, as well as pressuring the Dutch government to sentence programmer Alexey Pertsev, also of the project, to 64 months in prison.