Treasury Lifts Tornado Cash Sanctions After Court Ruling

The U.S. Treasury Department has made a significant move by lifting sanctions on Tornado Cash, a cryptocurrency mixing tool that was previously blacklisted for its alleged involvement in money laundering activities, particularly aiding North Korea’s Lazarus Group. This decision comes after a federal appeals court ruled in November that the Office of Foreign Assets Control (OFAC) overstepped its authority by sanctioning Tornado Cash’s smart contracts, which the court determined do not constitute “property” under U.S. law.

The reversal of sanctions on Tornado Cash marks a pivotal shift in the regulatory landscape for cryptocurrency mixing services. Initially blacklisted in 2022, Tornado Cash faced multiple sanctions from the OFAC, which prohibited U.S. entities and individuals from engaging in financial transactions with the service. The Treasury’s press release emphasized ongoing concerns about state-sponsored hacking and money laundering campaigns aimed at benefiting North Korea, highlighting the complex nature of the regulatory environment.

Despite the lifting of sanctions on Tornado Cash, the developer associated with the service, known as Semenov, remains under sanctions. However, the accusations related to cyber activities have been removed from his designation, though his connection to North Korea keeps him on the sanctions list. Additionally, Roman Storm, a co-founder of Tornado Cash, is set to face a criminal trial this July, charged with developing the smart contracts and protocols for the service. Another developer involved has also been charged but has not yet been arrested.

The Treasury’s decision to maintain legal action against Semenov and other developers involved in Tornado Cash underscores a nuanced regulatory strategy. By lifting sanctions on the platform while continuing to target its developers, the Treasury aims to address concerns about illicit activities without completely shutting down the service. This approach reflects a broader effort to balance the potential legitimate use cases of cryptocurrency mixing services with the need for regulatory oversight and enforcement.

The lifting of sanctions on Tornado Cash is expected to have broader implications for the cryptocurrency industry. It may encourage other mixing services to adopt more stringent compliance measures to avoid similar regulatory actions. Additionally, it could pave the way for further discussions on the balance between privacy and regulatory oversight in the cryptocurrency space. The Treasury’s decision to maintain legal action against Semenov serves as a reminder that individuals involved in the development and operation of these services will continue to face scrutiny and potential legal consequences.