A federal appeals court has ruled that the US Treasury Department exceeded its authority by sanctioning cryptocurrency mixer Tornado Cash after a North Korean hacking group used the software to launder more than $455 million.
A three-judge panel of the Court of Appeals sided with six users of crypto-mixing services who argued that the software Tornado Cash used to conceal ownership of digital assets was not sanctionable under US law, ‘unlike the rogue individuals and entities that misused it’.
Coinbase Global Inc., the largest US cryptocurrency exchange, helped organise and fund the legal challenge, warning at the time that the move could harm the crypto industry.
Judge Don Willett said the government’s concerns about foreign actors laundering funds through software are ‘undeniably legitimate,’ but federal law only authorises the Treasury Department to take action against the property.
‘Perhaps Congress will update (the law) enacted during the Carter Administration to target modern technologies such as crypto-mixing software,’ Willett wrote. ‘Until then, we believe that Tornado Cash’s immutable smart contracts (the lines of software code that ensure privacy) are not the ‘property’ of a foreign national or organisation, meaning they cannot be blocked.’
In 2022, the Treasury Department sanctioned Tornado Cash, saying the mixer had been used to launder more than $455 billion in virtual currency since its inception, including $7 million stolen by the North Korea-linked hacking group Lazarus.
In May, Alexey Pertsev, one of the developers of Tornado Cash, was sentenced to five years and four months in prison by Dutch authorities for helping launder more than $2bn. He said in a social media post last week that he planned to appeal.
Monthly deposits into Tornado dropped by more than 90 per cent following the sanctions, but the software experienced a resurgence in 2024. According to blockchain analytics firm Flipside Crypto, the protocol received more than $1.8 billion in deposits in the first half of 2024.
This time the US is targeting North Korea’s military financing
