U.S. Treasury Removes Tornado Cash FROM ITS SANCTIONS LIST
On March 21, 2025, the U.S. Department of the Treasury officially removed Tornado Cash, a prominent cryptocurrency mixer, from its sanctions list. This action reverses the sanctions imposed in 2022, which accused Tornado Cash of facilitating the laundering of over $7 billion in virtual currency, including funds stolen by North Korean hackers.
Background on Tornado Cash and Initial Sanctions
Established in 2019, Tornado Cash is an Ethereum-based smart contract platform designed to enhance transaction privacy by obfuscating the origins and destinations of cryptocurrency transfers. Its functionality made it attractive not only to privacy-conscious users but also to malicious actors seeking to conceal illicit activities. In August 2022, the Treasury's Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, alleging its involvement in laundering substantial sums, notably over $455 million stolen by North Korea's Lazarus Group.
Legal Challenges and Court Rulings
The sanctions faced immediate legal opposition. Six users of Tornado Cash, supported by cryptocurrency exchange Coinbase, filed a lawsuit challenging OFAC's authority to sanction open-source software. In November 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that OFAC had exceeded its authority, stating that Tornado Cash's immutable smart contracts did not constitute "property" under federal law. The court emphasized that while the technology could be misused, it was beyond OFAC's jurisdiction to sanction the software itself.
Treasury's Decision to Delist
In light of the court's decision and after reviewing the legal and policy implications, the Treasury Department chose to lift the sanctions against Tornado Cash. Treasury Secretary Scott Bessent acknowledged the evolving technological landscape and reiterated the department's commitment to securing the digital asset industry from misuse by illicit actors, including state-sponsored hackers.
Impact on Ongoing Legal Proceedings
The delisting of Tornado Cash has significant implications for ongoing legal cases involving its developers. For instance, Roman Storm, one of the co-founders, was charged in 2023 with facilitating money laundering and awaits trial. While the removal of sanctions may influence the legal strategy and arguments in such cases, it does not automatically exonerate individuals accused of criminal activities. Each case will continue to be evaluated based on its specific facts and evidence.
Future of Crypto Mixers and Privacy
The delisting sets a notable precedent in the regulation of decentralized technologies. It underscores the challenges regulators face in addressing technologies that lack centralized control and can be used for both legitimate privacy needs and illicit purposes. While privacy advocates may view this as a victory, it also highlights the necessity for a balanced approach that safeguards individual privacy without compromising efforts to prevent money laundering and other illegal activities. Future regulatory frameworks may need to adapt, focusing on illicit actors rather than the technology itself, to effectively address the dual-use nature of tools like crypto mixers.
The Treasury's decision to delist Tornado Cash reflects the complexities of regulating decentralized technologies in the digital age. It prompts a reevaluation of current regulatory approaches and emphasizes the importance of developing nuanced policies that address both the potential benefits and risks associated with cryptocurrency mixers.