Arkansas defends restrictions on foreign-owned crypto mining

An appellate judge said the lower court's injunction against the entirety of the law was "way overbroad," suggesting it should not stay in effect.ST. PAUL, Minn. (CN) — A legal battle over digital asset mining in Arkansas landed before the Eighth Circuit Tuesday, as state officials urged the court to lift an injunction blocking state law limiting foreign ownership.At the heart of the debate is Arkansas’ Act 174, passed in 2024 to create a permitting scheme for electricity-consuming digital asset mining operations, a type of data center.The Arkansas Cryptomining Association — a trade group representing crypto mining companies — sued the state last year over a section of the act prohibiting certain foreign parties from owning an interest in such operations.Prohibited parties include citizens and businesses from or belonging to countries subject to federal arms export restrictions, like China, Iran, North Korea and Venezuela.Arguing against “government overreach,” the association claimed Arkansas has no right to set its own foreign affairs and national security policies, let alone discriminate against would-be investors based on national origin.Arkansas, however, argued control over property ownership within a state’s borders is a power long held by states — adding federal foreign oversight law is not an all-encompassing scheme meant to crowd out state control.“Regulating property ownership and protecting public well-being goes to the very heart of state police powers,” Joseph Nelson, Arkansas’ attorney, said. “These laws ensure that crypto mining facilities will not strain local utilities.”A lower court in 2025 sided with the association, blocking the entire act after finding the ownership section was likely preempted by federal law and in conflict with foreign policy.The injunction’s massive scope became a major roadblock for the group Tuesday, as U.S. Circuit Judge James Loken criticized the lower court’s ruling, calling the sweeping injunction “way overbroad.”“You’re saying, ‘we asked for a slice of bread, and the district court gave us the full loaf,’” the George H.W. Bush appointee said, scoffing at a request that the court affirm the injunction and let litigation handle the specifics.“If the injunction is overbroad, it shouldn’t stay in effect,” Loken added. “I don’t care if there are one or two issues that should stay in effect; it’s an affront on separation of powers.”Nelson shared Loken’s concerns, noting facial challenges like this one “short-circuit the democratic process," arguing a blanket injunction against the act — which largely deals with regulations, noise limits and utility protections — is improper, and any ruling should be tailored to the actual plaintiffs before the court.Beyond challenging the scope, Arkansas argued the lower court misapplied preemption.The state maintained federal foreign investment laws are inherently restrictive — designed to block bad actors for national security — and therefore states should not be prevented from enacting similar safeguards.U.S. Circuit Judge David Stras played devil’s advocate against that logic, suggesting the federal government may have limited investment to some sort of “ideal amount.”“If so, then going further than what the federal government would want as a matter of foreign policy arguably at least frustrates the objectives of the federal system,” the Donald Trump appointee said.If that were true, Nelson countered, the state would have already faced government interference.“The federal government has been silent,” he said. “It has never protested or suggested it’s somehow lessening the federal government’s ability to conduct foreign policy.”The association, meanwhile, said Arkansas’ law risks leaving the federal government with less power and fewer “bargaining chips” to use when deciding foreign policy.It also noted the act triggers at any foreign investment amount, capturing minor investments that would never warrant federal review.Stras challenged that framing, noting federal law governing foreign investments likely prioritizes national security over actual investment objectives — which would leave plenty of room for states to step in and regulate property ownership.“It’s a twin goal. It is promoting good economics, which itself can enhance national security,” the association’s attorney, Alexander Jones, said, referencing policy language encouraging the U.S. to “enthusiastically welcome” and support foreign investment.Stras, admitting that may be a goal shared by federal officials, noted foreign investment committees are not explicitly told to weigh the benefits of that investment against security concerns.“You may be right about the purpose, but it doesn’t really show up anywhere,” he said.One of the association’s members, Jones Eagle LLC, similarly sued the state in 2024 over the law — later obtaining an injunction enjoining enforcement while the case played out.Both injunctions now face Eighth Circuit review, though Tuesday’s case targets the statute on a sweeping, statewide scale rather than for a single firm.U.S. Circuit Judge Bobby Shepherd, a George W. Bush appointee, rounded out the Eighth Circuit panel.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads