- The US government removed Tornado Cash from its sanctions list.
- Privacy and crypto advocates hailed the move as a major victory.
- But the Treasury Department has hinted it could reverse the decision.
US officials removed crypto mixer Tornado Cash from a list of sanctioned entities on Friday, a major win for privacy advocates and the crypto industry.
The US Department of the Treasury said it used its “discretion” to remove Tornado Cash after a “review of the novel legal and policy issues” raised by “evolving technology and legal environments.”
“We remain deeply concerned about the significant state-sponsored hacking and money laundering campaign aimed at stealing, acquiring, and deploying digital assets for the Democratic People’s Republic of Korea (DPRK) and the Kim regime,” the department said in a statement Friday.
“Treasury will continue to monitor closely any transactions that may benefit malicious cyber actors or the DPRK, and U.S. persons should exercise caution before engaging in transactions that present such risks.”
The Tornado Cash token, TORN, jumped 60% on the news to $12.45 on Friday.
TORN plunged 70% to $9 after the Treasury Department sanctioned the protocol in August 2022, and it hit an all-time-low of $1.29 in December 2023. The token briefly hit an all time high shortly after its debut in 2021, topping $430.
The removal was a long time coming: In November, a federal appeals court in New Orleans sided with Ethereum developer Preston Van Loon and five other Tornado Cash users who had sued the Treasury Department. The department had overstepped its authority by sanctioning the protocol, according to the lawsuit.
The court found the immutable smart contracts at the heart of Tornado Cash were not property and, in turn, couldn’t be sanctioned. Like other so-called immutable software, most of the smart contracts that comprise Tornado Cash cannot be modified, even by the developers that created and launched the protocol. Some parts of Tornado Cash, however, can be modified by its developers.
The Treasury Department’s decision on Friday handed crypto and privacy advocates a major victory.
“We won,” Neeraj Agrawal, communications head at crypto think tank Coin Center, wrote on X. Coin Center had challenged the sanctions designation in a separate lawsuit in 2022.
But some lamented the impact it would have on the US’ ability to fight cybercrime. In a legal filing Tuesday, the Treasury itself said delisting Tornado Cash “could impair the government’s ability to disrupt” North Korea’s financing of its nuclear weapons programme with stolen crypto.
“In a long list of horribles, this is one of the most dangerous and irresponsible things coming out of the Trump White House,” Representative Sean Casten, a Democrat from Illinois, wrote on X.
“Tornado Cash exists to make it easier to launder money. Period.”
Meanwhile, some legal experts cautioned it wasn’t a total victory for Tornado Cash users.
An analysis from crypto advocacy firm DeFi Education Fund noted that the Treasury department has implied it still considers Tornado Cash a sanctionable entity, as some aspects of the protocol as controlled by its developers.
“Continuing to assert that a decentralized software protocol is an entity and that developers of said protocol are themselves liable for enabling illicit activity for writing its code and making it publicly available is a flawed conclusion,” DeFi Education Fund wrote in its analysis.
Additionally, Treasury did not remove Tornado Cash co-founder Roman Semenov from its sanctions list, and the Department of Justice has not signalled it intends to drop its prosecution of another co-founder, Roman Storm.
Storm has been charged with three counts of conspiracy: to commit money laundering; operate an unlicensed money-transmitting business; and to violate US sanctions.
His trial begins in April, and faces decades in prison if he’s found guilty.
“Van Loon has no bearing on this case,” prosecutors wrote in a filing in January.
“Van Loon rests on a factual conclusion that the Government not only does not dispute, but has affirmatively alleged in the Indictment: the Tornado Cash pools are immutable smart contracts.”
“While we have won a big battle, the war is far from over,” Storm wrote on X Friday.
Background
Tornado Cash lets users deposit Ether into a larger pool of other Ether deposits. After a user deposits their tokens from one address, they can withdraw that amount of tokens from a completely new address.
That’s a useful feature for those who want to hide their crypto transactions, such as persecuted dissidents and, of course, criminals.
In 2022, the Treasury Department’s Office of Foreign Assets Control, or OFAC, sanctioned Tornado Cash, citing the protocol’s popularity with North Korean hackers who used it to launder stolen crypto.
That crypto was then used to fund the pariah nation’s nuclear weapons programme, according to US officials.
Van Loon and other Tornado Cash users, bankrolled by crypto exchange Coinbase, sued the Treasury Department for violating Americans’ financial freedom and their Constitutional right to free speech.
Co-plaintiff Tyler Almeida, for example, had used the protocol to donate to Ukraine after it was invaded by Russia, fearing that his donation would otherwise draw attention from “Russian state-sponsored hacking groups,” according to the lawsuit.
Others in the industry stepped up to support them.
“Like any tool — indeed, like the internet itself — software like Tornado Cash can be misused for illicit purposes,” two of the industry’s top advocacy groups, wrote in a brief filed on Van Loon’s behalf.
“But it is used primarily for legitimate and socially valuable reasons.”
In August 2023, a US court ruled largely in favour of OFAC, but Van Loon appealed.
A three judge appellate panel in New Orleans found that the law invoked to sanction Tornado Cash — the 47-year-old International Emergency Economic Powers Act — was ill-suited to “target modern technologies like crypto-mixing software.”
“We hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the ‘property’ of a foreign national or entity,” the court wrote in its 34-page opinion.
In February, the appellate judges signalled the Treasury had not asked the court to reconsider that opinion, and ordered a lower court based in Texas to remedy the situation.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can contact him at aleks@dlnews.com.
