Tornado Cash Sanctions Dropped by US Treasury, TORN Token Surges 40%

The US Treasury Department has made a significant decision to drop its appeal in the legal battle surrounding the sanctions imposed on Tornado Cash, an Ethereum coin mixer. This move follows months of legal proceedings and an agreement between the Treasury and the advocacy group to dismiss the case. The Eleventh Circuit Court of Appeals subsequently vacated the judgment, effectively ending the enforcement of the sanctions guidance. The decision to drop the appeal was filed with the Eleventh Circuit Court of Appeals, which then vacated the judgment and instructed the lower court to dismiss the case entirely. This ruling means that the government’s guidance on enforcing those sanctions is no longer in effect. The Treasury and the advocacy group jointly filed a motion to dismiss the judgment, which was granted by the court. This development indicates that the Treasury no longer wishes to pursue this legal battle, as the court had heard oral arguments on November 19 but never issued a ruling.

Tornado Cash, a Russian-developed crypto mixer, was initially placed on the sanctions list by the Treasury. However, with this latest move, its status on the sanctions list is no longer active. The tool, which allows users to mix their cryptocurrency transactions to enhance privacy, has been a subject of controversy due to its potential use in illicit activities. The removal of sanctions on Tornado Cash marks significant regulatory acknowledgment, influencing ongoing legal debates around digital assets and smart contracts. The Office of Foreign Assets Control (OFAC), under the US Treasury, removed Tornado Cash from the Specially Designated Nationals and Blocked Persons (SDN) list, following an appellate court's decision. The ruling found the initial sanctions placed in August 2022 targeted on immutable smart contracts lacked legislative backing, a perspective that altered past regulatory stances. The US Treasury Department noted these sanctions' removal arose from recognizing policy issues tied to sanctioning financial activities within evolving technology and legal frameworks. The withdrawal signifies a critical shift in how decentralized finance protocols may be addressed legally moving forward.

Immediate effects included a notable 40% surge in TORN token value following the announcement. The decision impacted over 100 Ethereum addresses previously sanctioned, representing significant movement in the DeFi market, drawing attention to unexplored governance implications. Industry stakeholders see the sanctions' removal as a possible precedent challenging the government's approach toward cryptocurrency privacy protocols. Legal experts suggest further legal and regulatory standards could emerge, refining the way authorities engage with decentralized and autonomous blockchain systems. The case raises questions about how future legal frameworks will navigate DeFi, emphasizing opportunities for clarity through informed regulatory policies. This outcome sparks debates on defining property within decentralized networks, hinting at potential shifts in financial legislation.

Despite the resolution of the sanctions case, the co-founder of Tornado Cash, Roman Storm, still faces a criminal trial scheduled for July 14. Storm is accused of laundering over $1 billion, some of which allegedly came from the Lazarus Group, a North Korean hacking outfit known for massive crypto heists. The Department of Justice claims that Storm and fellow developer Roman Semenov were responsible for these activities. Storm, backed by Coinbase and the Ethereum Foundation, argues that the government is targeting software code rather than specific actions. This defense hinges on the idea that the software operates automatically and without direct control by its developers. In May 2024, another Tornado Cash developer, Alexey Pertsev, was convicted by a Dutch court for money laundering and sentenced to five years in prison. Pertsev argued that the smart contracts on Tornado Cash run automatically and that he had no direct control over them. However, the judges rejected this reasoning and held him accountable for the activities facilitated by the software.

The legal battle over Tornado Cash highlights the complexities and challenges of regulating cryptocurrency and blockchain technology. The case has raised important questions about the legal and policy implications of using software tools for financial transactions, particularly in the context of economic sanctions and money laundering. As the technology continues to evolve, it is likely that similar legal battles will arise, requiring careful consideration of the balance between privacy, security, and regulatory oversight. The US Treasury Department stated, "Based on the Administration's review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash."