Tornado Cash Cleared From U.S. Sanctions After Court Ruling

Tornado Cash, a cryptocurrency mixing service, has been officially cleared from U.S. sanctions following a district court ruling on Monday. The Treasury Department’s Office of Foreign Asset Control (OFAC) had initially removed Tornado Cash from its sanctions list in March, several months after an appeals court ruled that the agency had exceeded its authority by sanctioning the service’s smart contracts in 2022. However, the manner in which OFAC de-listed Tornado Cash left room for potential future sanctions, which was a concern for the plaintiffs in the case.

The plaintiffs, who are all users of Tornado Cash, argued that the issue was not moot and that OFAC’s response to the Fifth Circuit’s ruling was chaotic and an attempt to evade an adverse judgment. In his ruling, U.S. District Judge Robert Pitman of the Western District of Texas agreed with the plaintiffs, stating that OFAC’s designation of Tornado Cash was unlawful and that the agency is permanently enjoined from enforcing sanctions against it. Pitman noted that OFAC did not rule out the possibility of sanctioning Tornado Cash again in the future.

The U.S. Department of Justice (DOJ) is currently pursuing criminal charges against two Tornado Cash developers, Roman Storm and Roman Semenov, who were charged in 2023 with conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitter, and conspiracy to violate U.S. sanctions. Semenov remains on OFAC’s sanctions list. Earlier this month, U.S. Deputy Attorney General Todd Blanche sent a memo to DOJ staff outlining new enforcement priorities, instructing them to no longer pursue cases against crypto exchanges, mixing services, or offline wallets for the acts of their end users or unwitting violations of regulations. This memo has already impacted ongoing crypto litigation, with prosecutors in the case against the two founders of crypto mixer Samourai Wallet filing a joint request for an extension in various deadlines as they decide whether to drop charges under the new enforcement standards.

This ruling is a significant victory for Tornado Cash users and the broader cryptocurrency community, as it sets a precedent for the limits of OFAC’s authority in sanctioning decentralized technologies. However, the ongoing criminal charges against Tornado Cash developers and the DOJ’s new enforcement priorities indicate that the regulatory landscape for cryptocurrency mixing services remains uncertain. The case highlights the complex interplay between regulatory oversight and technological innovation in the cryptocurrency space, and the need for clear and consistent guidelines to govern the use and development of decentralized technologies.