In a significant development in the ongoing legal battle, a U.S. federal court has reversed its previous ruling against Tornado Cash, declaring that the U.S. Treasury Department’s sanctions on the cryptocurrency mixer were imposed unlawfully. The court’s decision has been hailed by Coinbase’s Chief Legal Officer (CLO), Paul Grewal, as a victory for fairness and transparency in blockchain regulation.
Court Ruling Against Treasury’s Sanctions
The U.S. District Court for the Western District of Texas ruled that the Office of Foreign Assets Control (OFAC) violated the Administrative Procedure Act (APA) by sanctioning Tornado Cash. The court’s ruling prohibits the Treasury from reissuing the same sanctions, though it does not preclude the possibility of new sanctions, provided they fully comply with the APA.
Paul Grewal, Coinbase’s CLO, expressed his approval of the decision, commending the plaintiffs for their courage in challenging the government’s actions. He emphasized that this ruling represents a significant step forward in the legal and regulatory landscape of cryptocurrency, particularly in the fight for transparency and due process.
Treasury’s Botched Handling of the Case
The sanctions imposed by OFAC in 2024 followed allegations that Tornado Cash was linked to the North Korean hacking group Lazarus. However, the court found fault with the Treasury’s handling of the delisting procedure, particularly its attempt to moot the case after Tornado Cash was removed from the Specially Designated Nationals (SDN) list. Grewal criticized the Treasury’s actions, suggesting that their attempt to drop the case was a tactic to preserve the ability to reapply the sanctions in the future.
The court sided with the plaintiffs in rejecting this approach, with the judge noting that the Treasury could not simply seek to reinstate the original sanctions without a full and lawful process.
Legal and Market Impact
The ruling is a major win for those who argue that blockchain technology should not be treated as an unlawful entity but rather regulated in a manner that respects due process. In response to the court’s decision, the price of Tornado’s native token (TORN) surged nearly 8%, reaching $7.90, reflecting optimism within the market. Additionally, the broader cryptocurrency market saw modest gains, with Bitcoin and other top coins also showing positive movements.
Despite the legal victory for Tornado Cash, Grewal called for stronger blockchain transparency measures to combat illicit activity while maintaining fair and reasonable oversight. He advocated for a balanced approach that enables the blockchain industry to grow while minimizing risks associated with criminal behavior.
What’s Next?
While the ruling prevents the immediate re-imposition of sanctions on Tornado Cash, the situation remains fluid, and the Treasury could potentially issue new sanctions in line with proper legal procedures. This case sets a significant precedent for future regulatory actions involving cryptocurrency mixers and other decentralized platforms.
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