Treasury Lifts Tornado Cash Sanctions, Reversing 2022 Ban

The U.S. Department of the Treasury has removed sanctions against Tornado Cash, a decentralized cryptocurrency mixer, thereby legalizing its use for American citizens. This action reverses the sanctions imposed in August 2022 by the Office of Foreign Assets Control, which had accused the platform of facilitating money laundering activities, including those linked to North Korea’s Lazarus Group.

Tornado Cash, introduced in 2019, is an Ethereum-based protocol designed to enhance transaction privacy by allowing users to obscure the origins and destinations of their cryptocurrency transfers. While this service is beneficial for individuals seeking financial privacy, it has also been misused by malicious actors to launder illicit funds.

The Treasury Department had previously alleged that Tornado Cash was used to launder over $7 billion in virtual currency, including $455 million stolen by the Lazarus Group. Treasury Secretary Scott Bessent commented on the decision, stating, “Digital assets present enormous opportunities for innovation and value creation for the American people. Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion.”

Critics had argued that sanctioning open-source software infringed upon free speech and technological innovation. In response, a group of Tornado Cash users, supported by a cryptocurrency exchange, filed a lawsuit challenging the sanctions. In November 2024, a federal appeals court ruled in favor of the plaintiffs, stating that the Treasury had overstepped its authority. The court emphasized that Tornado Cash’s immutable smart contracts did not qualify as “property” under federal law, thereby falling outside the scope of the International Emergency Economic Powers Act. Judge Don Willett noted that while the technology could be misused, it was the role of Congress, not the courts, to amend relevant laws.

The lifting of sanctions on Tornado Cash signifies a notable shift in the U.S. government's approach to regulating cryptocurrency mixers. This decision not only allows American citizens to access the platform but also sets a precedent for how the government balances financial innovation with national security. The court's ruling highlights the importance of legal clarity in the regulation of digital assets, ensuring that technological advancements are not hindered by overreaching sanctions.