Tornado Cash Sanctions To Stay: US Judge Denies Appeal

A United States Federal Court has dismissed the appeal of several Tornado Cash users who were attempting to lift sanctions on the cryptocurrency mixer.

“Plaintiffs contend that smart contracts are not property because they are incapable of being owned,” the filing states.

Disagreement on How To Define Tornado Cash

According to an Aug. 18 court filing, US District Judge Robert Pitman has determined that the penalties against cryptocurrency mixer Tornado Cash are valid. He has rejected the request of six users to lift the sanctions against Tornado Cash.

This lawsuit is in response to US authorities imposing a strict measure on Tornado Cash last year.

In August 2022, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specially Designated Nationals and Blocked Persons (SDN) List.

In light of numerous allegations of the mixer being involved in money laundering, this sanction demands that all property of Tornado Cash in the US or owned by US citizens must be reported to the OFAC.

However, the six plaintiffs, who use Tornado, believe that there is confusion over what Tornado Cash really is:

“The parties disagree on how to characterize Tornado Cash. Plaintiffs contend that Tornado Cash is a decentralized, open-source software project comprised of a subset of smart contracts, or “pools,” on the Ethereum blockchain.”

The six users argue that the decision goes beyond the Department’s authority. They argue it oversteps its jurisdiction and violates the Free Speech Clause.

The users argue that Tornado Cash is different to other mixing services, as it is an autonomous software.

“Its users rely on smart contracts that are immutable, autonomous, and self-executing,” the plaintiffs argue.

The Treasury on the other hand, characterizes Tornado Cash as an “entity operating a cryptocurrency mixing service.”

Sanctions Imposed Due To Money Laundering Allegations

The Department’s Office of Foreign Assets Control sanctioned Tornado Cash, after alleging it enabled $7 billion in illicit funds flow since 2019.

The Treasury claimed that North Korean hacking group, called Lazarus Group, funneled over $455 million stolen funds through Tornado Cash. 

It was also alleged that the Horizon Bridge attack in June 2022 and the Nomad Heist had been laundered through Tornado Cash.

The sanctions resulted in a notable decrease in activity for Tornado Cash. With the sanctions taking effect, the number of monthly users decreased by 50% from July 2022 to August 2022.

This is a developing story and more information will be added as it becomes available.