Nikolas Sargeant
In a landmark decision, a Texas federal court has permanently barred the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) from reimposing sanctions on Tornado Cash, a decentralized Ethereum-based privacy tool. The court's ruling underscores a growing judicial reluctance to grant expansive authority to executive agencies in the realm of cryptocurrency regulation. Judge Robert Pitman emphasized that Tornado Cash's immutable smart contracts cannot be classified as "property" under the International Emergency Economic Powers Act (IEEPA), as they are not owned or controlled by any individual or entity .
The ruling has significant implications for the future of cryptocurrency regulation, particularly concerning the government's ability to sanction decentralized protocols. Legal experts suggest that this decision may prompt a reevaluation of how laws like the IEEPA apply to technologies that operate without a central authority.
Despite the court's decision, the U.S. Treasury remains committed to combating illicit activities in the cryptocurrency space, particularly those linked to North Korean cyber operations. The department continues to focus on prosecuting individuals involved in illicit activities, as demonstrated by ongoing legal actions against Tornado Cash co-founder Roman Storm.
Market Reaction
This decision builds upon a November 2024 Fifth Circuit ruling, which found that OFAC had overstepped its authority by sanctioning the software. The court noted that immutable smart contracts are not "property" because they are not capable of being owned or controlled, highlighting the challenges of applying traditional legal frameworks to decentralized technologies.
At that time, the price of Tornado Cash jumped 500% in reaction to the news. This time, the markets seemed to have expected this ruling as the reaction was relatively muted. The price of TORN went from $7.42 briefly to $7.92, before returning to $7.64 by the following morning.
