Tornado Cash Delisted After Court Ruling on OFAC Jurisdiction

Last month, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) removed Tornado Cash from its sanctions list, following a November 2024 ruling by a Fifth Circuit Court of Appeals panel. The court had determined that OFAC could not sanction smart contracts tied to the crypto mixer. However, the developer Roman Semenov remained on the Specially Designated Nationals list.

The delisting of Tornado Cash, which included smart contract addresses and other components of the mixer, was seen as a significant development in the crypto industry. The decision came after a legal battle that began when a group of developers, backed by crypto exchange Coinbase, sued OFAC. The initial ruling by a district court judge favored the Treasury Department, but the appeals court ruled that smart contracts were outside OFAC's jurisdiction. This ruling led to the delisting, as OFAC filed a notice stating that the removal made the legal case moot.

Peter Van Valkenburgh, the executive director at Coin Center, noted that OFAC had limited options following the November decision. "They could have waited for the court to invalidate the sanctions or they could have delisted them themselves, and they delisted themselves," he said. This move could be interpreted in two ways: either OFAC wanted to preserve its ability to fight future cases or it simply wanted to resolve the matter quickly.

Leah Moushey, an attorney with Miller & Chevalier, suggested that the court might reject OFAC's filing due to the open question of whether Tornado Cash can be redesignated in the future. She cited a Supreme Court case, FBI v. Fikre, where the court ruled that the U.S. government had not sufficiently proven that removing an individual from a no-fly list meant they would never be placed back on it. OFAC may need to show that Tornado Cash cannot be designated again.

Another open question is whether the delisting affects the U.S. Department of Justice's criminal case against developer Roman Storm. After the Fifth Circuit ruling, Storm's attorneys filed a motion to dismiss the indictment, but the judge ruled that the case should proceed. The judge determined that the scope of the conduct went beyond interactions with the smart contract, and the Fifth Circuit ruling did not discuss Tornado Cash as an entity. Van Valkenburgh noted that OFAC left its sanctions against Semenov in place, and the DOJ will continue to argue that Storm conspired to violate sanctions. The Storm case is set for trial in July.