The federal appeals court ruled against the US Treasury Departments sanctions on Tornado Cash in a Court of Appeals in New Orleans on Tuesday, Nov. 26.

The three-judge panel determined that the Treasury overstepped its legal authority by sanctioning the software itself rather than specific individuals or entities.

The court found that the Tornado Cash software’s code cannot be classified as “property” that can be sanctioned. Coinbase supported the legal challenge, arguing against the blanket blocking of open-source technology.

Can’t Sanction Code

Circuit Judge Don Willett said the US government’s concerns about foreign actors laundering funds through the crypto mixer are “undeniably legitimate.” However, federal law only gives the Treasury Department the authority to take action against property, reported Bloomberg.

“Perhaps Congress will update (the law), enacted during the Carter Administration, to target modern technologies like crypto-mixing software,” said Willett before adding:

“Until then, we hold that Tornado Cash’s immutable smart contracts are not the ‘property’ of a foreign national or entity, meaning they cannot be blocked.”

Department of the Treasury’s Office of Foreign Assets Control (OFAC) originally sanctioned Tornado Cash in 2022, claiming it was used to launder over $7 billion in crypto, including $455 million by hacking groups associated with North Korea.

It is “incredible the degree to which crypto is killing it in federal courts,” exclaimed Uniswap founder Hayden Adams.

Meanwhile, Coinbase chief legal officer Paul Grewal said “privacy wins” before adding that this is “a historic win for crypto and all who cares about defending liberty.”

“These smart contracts must now be removed from the sanctions list, and US persons will once again be allowed to use this privacy-protecting protocol. Put another way, the government’s overreach will not stand.”

“No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized,” he added.

Privacy wins. Today the Fifth Circuit held that @USTreasury’s sanctions against Tornado Cash smart contracts are unlawful. This is a historic win for crypto and all who cares about defending liberty. @coinbase is proud to have helped lead this important challenge. 1/6

TORN Price Surges

The Tornado Cash native token TORN spiked more than 850% on the verdict, skyrocketing from $3.60 to top out at $35 in early trading in Asia.

TORN has since retreated to around $18 at the time of writing, which is still up more than 400% over the past 24 hours.

Nevertheless, the crypto mixer token remains down 96% from its February 2021 all-time high of $436, according to Coingecko.

Tornado Cash $TORN jumped as much as 700% after US court rules sanctions placed against Tornado Cash crypto mixer were unlawful. pic.twitter.com/yLxPMAomjX