Tornado Cash Sanctions ‘Unlawful,’ Fifth Circuit Delivers Historic Win for Privacy

Key Takeaways

• A federal appeals court overturned U.S. sanctions on Tornado Cash.
• The court found that Tornado Cash’s smart contracts do not qualify as “property” under current law.
• The ruling does not absolve co-founder Roman Storm, who faces separate criminal charges.

A federal appeals court has struck down U.S. sanctions against Tornado Cash, ruling that the Treasury Department exceeded its legal authority in targeting the crypto privacy tool.

The Fifth Circuit Court of Appeals in New Orleans declared the sanctions unlawful, citing the department’s misinterpretation of its powers under the International Emergency Economic Powers Act (IEEPA).

Sanctions Deemed Unlawful

The Treasury sanctioned Tornado Cash in 2022 , claiming it enabled over $7 billion in money laundering, including funds tied to North Korea’s Lazarus Group.

However, the court found that Tornado Cash’s immutable smart contracts—self-executing lines of code that facilitate privacy—do not qualify as “property” under existing law.

“Perhaps Congress will update (the law) to address modern technologies like crypto-mixing software,” wrote Judge Don Willet in the court’s opinion. “Until then, Tornado Cash’s smart contracts cannot be blocked.”

While the court acknowledged legitimate concerns about the platform’s misuse by foreign actors, it ruled that targeting the software itself fell outside Treasury’s jurisdiction.

Under current law, the agency may block property owned or controlled by foreign nationals—not open-source code.

Implications for Privacy in Crypto

The decision marks a significant victory for privacy-focused technologies, which have come under increasing scrutiny from regulators.

By clarifying the limits of the Treasury’s authority, the ruling may provide temporary relief for other privacy tools navigating legal challenges in the absence of updated crypto regulations.

The case also underscores the tension between privacy innovations and regulatory frameworks designed for a pre-digital era.

Advocates argue that punishing software for potential misuse sets a dangerous precedent, while critics warn it risks enabling illicit activity.

What It Means for Tornado Cash’s Founder

Despite the ruling, Tornado Cash co-founder Roman Storm remains in legal jeopardy.

Storm faces separate charges, including facilitating sanctions violations and money laundering. Legal experts suggest the court’s decision has limited bearing on his case.

“The ruling doesn’t absolve Tornado Cash of being a service,” said Bill Hughes , an attorney for Consensys. “It only establishes that the smart contracts weren’t property. The Department of Justice (DOJ) still alleges Storm knowingly operated a platform in violation of sanctions.”

The crypto community has rallied behind Tornado Cash’s developers, with donations supporting their legal defense.

Coinbase has been instrumental in backing the case, earning widespread praise from privacy advocates.

While Judge Willet’s ruling is a milestone for crypto privacy, its impact remains confined to sanctions law.

The court’s acknowledgment of Congress’s need to address modern technologies signals that the debate over privacy tools like Tornado Cash is far from over.

For now, Tornado Cash has secured a key legal victory, but the fate of its entangled developers and advocates remain uncertain.