Treasury Lifts Tornado Cash Sanctions After Court Ruling

The U.S. Department of the Treasury announced on March 21, 2025, a significant policy shift by lifting economic sanctions against Tornado Cash, a controversial cryptocurrency mixing service that had been under U.S. sanctions since August 2022. This decision, reflected in the Treasury’s filing in Van Loon v. Department of the Treasury, marks a victory for privacy advocates and crypto developers who have long argued that code itself should not be the target of sanctions.

Tornado Cash is a virtual currency mixer operating on the Ethereum blockchain, enabling anonymous transactions by obscuring the origin, destination, and counterparties involved. By pooling and redistributing funds, Tornado Cash enhances privacy, but this feature has made it a popular tool for laundering stolen assets, especially in high-profile cyber heists. On August 8, 2022, the platform was sanctioned by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) under Executive Order 13694 for providing financial, material, or technological support for cyber-enabled activities originating outside the U.S. OFAC sanctioned Tornado Cash for “failing to impose effective controls” that prevented malicious actors from laundering funds through the crypto mixer. The activities connected with mixing and laundering the money were considered to pose a significant threat to U.S. national security, foreign policy, and economic stability, mainly when they involve the theft of funds, trade secrets, personal identifiers, or financial data for commercial gain or competitive advantage.

The OFAC designated Tornado Cash for its role in laundering over $455 million in cryptocurrency stolen by the Lazarus Group, a hacking organization linked to North Korea. Tornado Cash mixed over $7.6 billion worth of Ether since its launch in August 2019 up until 2022. Almost 30% of the funds sent through it have been tied to illicit actors.

The reversal follows a November 2024 ruling from the U.S. Fifth Circuit Court that OFAC had "overstepped its congressionally defined authority" when it sanctioned the cryptocurrency mixer. Central to the court's decision was the determination that Tornado Cash's immutable smart contracts cannot be classified as "property" under the International Emergency Economic Powers Act (IEEPA). The court reasoned that with immutable smart contracts, "there is no person in control and therefore 'no party with which to contract,'" according to documents filed by the Treasury Department. This legal interpretation creates a significant precedent for how decentralized protocols might be regulated in the future, potentially limiting the government's ability to sanction code rather than individuals.

Despite lifting sanctions on the platform itself, Treasury officials emphasized their continued commitment to combating illicit activity in the cryptocurrency space, particularly North Korean hacking operations. The pivot suggests a potential shift from targeting platforms to focusing on the individual actors exploiting them. This approach has already been demonstrated in cases against Tornado Cash co-founders Roman Storm and Roman Semenov, who were indicted by the U.S. Department of Justice in August 2023, and Alexey Pertsev, who was sentenced by a Dutch court to over five years in prison in May 2024.

For the cryptocurrency industry, the delisting represents both an opportunity and a challenge. Privacy-focused tools like Tornado Cash, which has been used to launder an estimated $7.6 billion in virtual assets since its creation in 2019, can now potentially operate without the chilling effect of sanctions. Cryptocurrency intelligence firms suggest this development will force a rethinking of compliance approaches. Rather than simply avoiding sanctioned platforms, businesses may need to develop more sophisticated methods for identifying and preventing transactions with illicit actors. The Treasury’s decision ultimately acknowledges the complex reality of regulating decentralized technology: code itself may be neutral, but accountability for how that code is used remains a priority for law enforcement worldwide. This is not an easy task, but regulators need to find answers to these challenges quickly, as the risks are only going to increase with time.