US Treasury Drops Tornado Cash from Sanctions List, Disputes Court Ruling in Ongoing Legal Battle

This comes after the Office of Foreign Assets Control (OFAC) initially sanctioned Tornado Cash in August 2022, claiming it was used to launder cryptocurrency funds stolen by North Korea’s Lazarus Group. In response, several Tornado Cash users filed a lawsuit challenging the sanctions.

Legal Dispute Continues Despite Treasury’s Action

After a favorable ruling for Tornado Cash, the U.S. Treasury reversed its decision on March 21, lifting the sanctions on the crypto mixer and removing several affiliated smart contract addresses from the Specially Designated Nationals (SDN) list. The Treasury now contends that the case is effectively resolved and does not require further legal action.

Given that Tornado Cash is no longer on the sanctions list, the Treasury argues that the case is now “moot,” and that the court does not need to issue a final judgment. The Department’s brief stated that, as per Article III jurisdiction, the court must ensure it still has a valid reason to proceed, which it claims is no longer necessary.

However, Coinbase’s Chief Legal Officer, Paul Grewal, disagrees with this stance, pointing out that the Treasury’s claim to moot the case before a court ruling is legally flawed. He emphasized that according to the “voluntary cessation” exception, a case is only deemed moot if the defendant can demonstrate that the action in question cannot reasonably be expected to happen again.

Grewal referenced a Supreme Court ruling in 2024 regarding the case of Yonas Fikre, a U.S. citizen removed from the No Fly List, where the Court ruled that taking Fikre off the list did not make his legal challenge moot because the restriction could be reinstated in the future. In the case of Tornado Cash, Grewal argued that while the Treasury removed it from the SDN list, there is no guarantee that the sanctions won’t be reinstated in the future, and thus, the case should not be considered moot.

The lawsuit was initially filed in September 2022 by a group of Tornado Cash users, including Ethereum core developer Preston Van Loon, who argued that the sanctions were unjust. Crypto policy advocacy group Coin Center also filed a similar suit in October 2022.

A federal court in Texas ruled in favor of the U.S. Treasury in August 2023, but a three-judge panel overruled that decision in November, stating that the Treasury’s sanctions on Tornado Cash’s immutable smart contracts were unlawful. After the Treasury’s 60-day window to challenge the decision, the court sided with Tornado Cash in January, forcing the Treasury to remove the sanctions by March.

Ongoing Legal Challenges for Tornado Cash Founders

Despite the Treasury’s actions, the legal challenges for Tornado Cash’s founders remain. In August 2023, U.S. authorities charged co-founders Roman Storm and Roman Semenov with laundering over $1 billion in cryptocurrency through the platform. Semenov remains on the FBI’s most-wanted list, while Storm, who is out on a $2 million bond, is awaiting trial in April.

In the meantime, Tornado Cash developer Alexey Pertsev was released from prison after a Dutch court suspended his pretrial detention as he prepares to appeal his money laundering conviction.

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