Tornado Cash Wins Legal Battle Against OFAC Sanctions

In a landmark decision, United States District Judge for the Western District of Texas, Robert Pitman, ruled in favor of Tornado Cash, a popular crypto mixer, against the Office of Foreign Assets Control (OFAC). The court documents, dated April 28, legally prohibit OFAC from reinstating the original sanctions imposed on Tornado Cash. This ruling marks a significant milestone for the development of web3 and decentralized finance (DeFi) both in the United States and globally.

In August 2022, OFAC added Tornado Cash to the Specially Designated Nationals and Blocked Persons (SDN) list, citing that the platform had enabled bad actors, notably the North Korea-backed Lazarus group, to launder over $7 billion in crypto assets. This move by OFAC was met with strong opposition from some Tornado Cash users, led by Joseph Van Loon, who argued that the Department of Treasury had overstepped its authority. The plaintiffs contended that Tornado Cash is not a person and that immutable smart contracts are not property, thereby challenging the legal basis for the sanctions.

In addition to these arguments, the plaintiffs also cited constitutional violations of free speech and financial privacy. They asserted that Tornado Cash can seamlessly exist within the United States, further bolstering their case against the OFAC sanctions. The court's decision to prohibit OFAC from reinstating the original sanctions is a significant victory for the web3 community, particularly for developers in the United States and globally. This ruling was celebrated by web3 leaders, including Paul Grewal, the Chief Legal Officer at Coinbase, who hailed it as a major step forward for the industry.

The ruling is expected to have broader implications for the open-source development of web3 protocols, especially under the anticipated crypto legal clarity during the Donald Trump administration. The decision underscores the importance of balancing regulatory oversight with the need to foster innovation in the crypto space. While the use of crypto mixers by bad actors remains an existential threat to the wider crypto market, the court's ruling highlights the complexities involved in regulating decentralized technologies.