Judge Bars Van Loon Ruling in Tornado Cash Trial

Judge Katherine Polk Failla has ruled that the Van Loon v. Treasury decision cannot be mentioned during the upcoming trial of Roman Storm, the developer of the Ethereum coin mixer Tornado Cash. The judge deemed the decision irrelevant and potentially confusing for jurors. Storm's trial is set to begin on July 14 in Manhattan, where he faces charges of money laundering, sanctions evasion, and operating an unlicensed money transmitter.

During a final status conference held on Tuesday, Judge Failla emphasized that the words "Van Loon" would not be allowed in the trial. This decision pertains to the Van Loon vs. Department of the Treasury case, in which a Fifth Circuit Court ruled that "immutable smart contracts are not property because they are not capable of being owned." The judge expressed concern that discussing the Van Loon case could confuse the jury, despite its significance in finding that the Treasury's Office of Foreign Assets Control overstepped its authority when it sanctioned the coin mixer.

This ruling comes at a pivotal moment for the crypto industry, as Storm's case has sparked debates on whether software developers can be held criminally liable for how their code is used. The judge also advised both sides to limit references to North Korea's weapons of mass destruction program, though no formal ruling has been made on this matter.

Web3 lawyer and founding partner at Panda Law, Dhrupad Das, explained that Judge Failla may have barred mention of the Van Loon ruling for several reasons related to evidence law. Das noted that the Van Loon judgment dealt with civil interpretations of OFAC’s authority under IEEPA, not criminal liability. He also pointed out that a Fifth Circuit judgment does not bind a Second Circuit district court, and its legal conclusions could only be offered as persuasive authority, which is material for motions, not for the jury. Das further explained that Judge Failla concluded that the limited probative value of the story was outweighed by the danger it would distract or mislead the jury.

Tornado Cash, founded in 2019 by Alexsey Pertsev and Roman Storm, is a non-custodial coin mixer servicing the Ethereum network. Coin mixers enable users to mask the origin and destination of transactions, making them a key battleground in the clash between privacy advocates and authorities. Storm's trial marks the culmination of a three-year legal battle that began in August 2022, when the OFAC sanctioned Tornado Cash for allegedly helping launder over $7 billion, including funds tied to North Korea’s Lazarus Group.

In 2023, the DOJ indicted Storm for conspiring to commit money laundering, evade sanctions, and operate an unlicensed money-transmitting business. These charges are now at odds with the DOJ’s new policy to drop similar cases. Storm’s legal team had hoped to leverage the Van Loon victory, which established that immutable smart contracts cannot be classified as "property" under existing sanctions law. However, with the appellate dismissal extinguishing the final civil challenge to OFAC sanctions, Storm’s defense can no longer argue immunity based on legal vacatur of the designation.

Prosecutors point to Storm’s actions after OFAC imposed sanctions, including Google searches, a $12 million TORN token sale, and ceding control of the app, as evidence of intent. All eyes now turn to whether the jury will see his actions after the imposition of sanctions, and before delisting, as criminal. If convicted, he faces up to 45 years behind bars.