Court Permanently Bars Treasury From Sanctioning Tornado Cash

A federal court has permanently barred the U.S. Treasury from reimposing sanctions on the crypto mixer Tornado Cash, marking a significant victory for advocates of crypto privacy. Judge Robert Pitman of the U.S. District Court for the Western District of Texas issued the final ruling on Monday, declaring the Treasury's actions "unlawful" and ordering a permanent injunction against enforcing the sanctions.

The ruling comes after the Treasury voluntarily lifted sanctions on Tornado Cash in March, an action that the government attempted to use to avoid a final judgment. The court rejected this argument, stating that the Treasury could potentially reenact the same sanctions in the future. This decision aligns with the Fifth Circuit's November ruling, which established that smart contracts are not sanctionable property under U.S. law.

The case originated from the Office of Foreign Assets Control's (OFAC) decision in August 2022 to sanction Tornado Cash, citing its alleged involvement in over $7 billion in money laundering, including funds linked to North Korean hackers. This was the first instance where U.S. authorities sanctioned open-source software protocols rather than individuals or organizations.

In November 2024, the Fifth Circuit Court of Appeals ruled that OFAC had exceeded its authority under the International Emergency Economic Powers Act. The court determined that immutable smart contracts are not property because they cannot be owned, and that over a thousand participants in a "trusted setup ceremony" prevented any updates or controls over Tornado Cash's core codebase. This ruling set a precedent for how blockchain protocols are treated under U.S. law, potentially reshaping regulatory approaches to decentralized finance services.

The decision comes three weeks after the Department of Justice announced it would no longer pursue criminal charges against crypto mixing services unless they are involved in criminal activities. This development underscores the evolving legal landscape for cryptocurrency and blockchain technologies, highlighting the need for clear regulatory frameworks that balance security concerns with the principles of decentralization and privacy.