Nov 26 (Reuters) - The U.S. Treasury Department acted

outside its authority when it sanctioned cryptocurrency mixer

Tornado Cash in 2022 and accused it of helping launder over $7

billion for North Korean hackers and other malicious cyber

actors, a U.S. appeals court ruled.

A three-judge panel of the New Orleans-based 5th U.S.

Circuit Court of Appeals on Tuesday sided with six users of

Tornado Cash who with the financial backing of the

cryptocurrency exchange Coinbase filed a lawsuit

challenging the sanctions.

Cryptocurrency mixers are anonymized software tools that

allow users to conceal the source or owner of digital assets.

The sanctions had been imposed by the Treasury Department's

Office of Foreign Assets Control pursuant to the International

Emergency Economic Powers Act.

OFAC blacklisted Tornado Cash after concluding it was

helping launder proceeds of cyber crimes, including more than

$455 million stolen by the Lazarus Group, a North Korean

government-backed hacking group.

Writing for a panel comprised of conservative judges, U.S.

Circuit Judge Don Willett said federal law only gave OFAC the

authority to regulate property, which Tornado Cash's immutable

crypto-mixing smart contracts did not constitute.

Such self-executing smart contracts, or "mixers," provided

increased anonymity by collecting, pooling and shuffling

cryptocurrencies that were deposited by many users and could not

be altered, removed or controlled, Willett said.

The judge, who was appointed by Republican President-elect

Donald Trump during his first four-year term, said the design of

that privacy-enabling software code rendered it incapable of

being owned or deemed legally as property.

He acknowledged "the real-world downsides of certain

uncontrollable technology falling outside of OFAC's sanctioning

authority." But Willett said it was up to Congress to update the

1977 law for the internet age, not the court.

The Treasury Department did not respond to requests for

comment.

Paul Grewal, the chief legal officer of Coinbase, in a post

on X hailed the ruling as "a historic win for crypto and all who

cares about defending liberty." Coinbase had argued that OFAC's

decision to sanction an entire technology could stifle

innovation and undermine privacy.

In May, one of Tornado Cash's developers, Alexey Pertsev,

was sentenced to five years and four months in prison in the

Netherlands for money laundering. Two Tornado Cash founders,

Roman Semenov and Roman Storm, were separately charged last year

with money laundering and sanctions violations by federal

prosecutors in New York.