Title: Tornado Cash Sanctions Vacated: What the Eleventh Circuit Decision Means for Crypto Privacy and Regulation
On July 3, 2023, the Eleventh Circuit Court of Appeals vacated the Northern District of Florida’s decision upholding the Treasury Department’s sanctions against Tornado Cash, a prominent Ethereum-based privacy mixer. This significant legal ruling marks the end of the Coin Center v. Yellen appeal, the last standing legal challenge against the Office of Foreign Assets Control (OFAC)’s designation of Tornado Cash in August 2022. Consequently, the district court is now mandated to dismiss the case, heralding a pivotal moment for both the future of cryptocurrency regulation and user privacy in digital transactions.
The appellate decision has broader implications regarding the classification of smart contracts as "property" under the International Emergency Economic Powers Act. The Northern District of Florida initially ruled in October 2023 that Tornado Cash’s smart contracts constituted blocked property; however, this stance has now been reversed, particularly in light of a conflicting decision by the Fifth Circuit in November 2024. In that ruling, the court held that immutable smart contract code should not be classified as property and cannot be subjected to sanctions. This developing circuit split emphasizes ongoing legal uncertainties surrounding blockchain technology and its governance.
Following the Fifth Circuit ruling, the Treasury opted not to appeal to the Supreme Court and instead took a groundbreaking step on March 21, 2024, by delisting all Tornado Cash addresses. The Treasury indicated that it would employ “targeted tools” to tackle illicit cryptocurrency transactions more effectively, which ultimately mitigated the alleged factual injuries claimed by the plaintiffs in the Coin Center case. Given this context, both parties filed a joint motion to the Eleventh Circuit to vacate the district ruling, leading to the court’s prompt agreement and formal closure of appellate docket 23-13698.
Despite the dismissal of the appeal and the removal of sanctions, Tornado Cash remains fully operational on the blockchain and is not subject to centralized control. Its governance token, TORN, continues to trade on decentralized exchanges, with no indication of delisting. However, the legal landscape has not entirely resolved issues related to the co-founders of Tornado Cash, Roman Storm and Roman Semenov, who face separate money laundering charges in a criminal court in the Southern District of New York. Their cases highlight a continuing ambiguity surrounding the liability of developers for the subsequent use of autonomous code, a legal debate likely to resurface in future enforcement actions.
While Tornado Cash has been effectively returned to the regulatory grey zone that prevailed before the sanctions were imposed in August 2022, it signals a potential re-evaluation of how privacy tools within the cryptocurrency space can be regulated. OFAC has indicated a willingness to craft narrowly tailored designations for privacy tools that can be proven to serve sanctioned entities. This ongoing dialogue illustrates the tension between encouraging innovation in the blockchain sector and ensuring compliance with international sanctions and regulations.
The decision by the Eleventh Circuit reflects broader trends in cryptocurrency regulation, where courts are increasingly challenged to make determinations about the nature of blockchain technology and the responsibilities of its developers. As the landscape evolves, stakeholders—including developers, users, and regulatory bodies—must remain vigilant to understand the implications of such rulings, particularly as cryptocurrencies gain more mainstream acceptance and use. The outcome of the Tornado Cash case serves as a reminder of the delicate balance between privacy in digital assets and adherence to the law, an issue that will undoubtedly influence future regulatory approaches and legal interpretations in the cryptocurrency domain.
In conclusion, the vacating of sanctions against Tornado Cash is a watershed moment in the ongoing conversation surrounding cryptocurrency regulation and user privacy. As the legal landscape continues to unfold, it remains essential for stakeholders to stay informed and engaged, working collaboratively to navigate the challenges posed by emerging technologies while ensuring a framework that supports innovation and compliance.
