Last week, the U.S. Treasury Department proclaimed they would be lifting their sanctions against Tornado Cash. This cryptocurrency mixer service is undergoing an extraordinary reversal in fortune. This decision was made public in November 2024 following a U.S. Fifth Circuit court ruling that determined the Office of Foreign Assets Control (OFAC) had "overstepped its congressionally defined authority" when it initially sanctioned the service in August 2022. The ruling reinforced that Tornado Cash’s immutable smart contracts are not “property.” This outcome comes directly from the parameters set by the International Emergency Economic Powers Act (IEEPA).
Tornado Cash was launched in 2019. Instead, it has made headlines by laundering more than $7.6 billion in digital currencies. It certainly came under a lot of scrutiny, especially for its purported role in helping the North Korea-linked Lazarus Group launder proceeds. The delisting from the sanctions list has given way to more than 100 new Ethereum (ETH) wallet addresses. These addresses are now removed from the Specially Designated Nationals (SDN) list.
Legal Developments and Rationale
The court’s ruling to overturn OFAC’s sanctions for the most part relied on the fact that Tornado Cash’s technology was a neutral technology. The Treasury Department acknowledged that "with respect to immutable smart contracts, there is no person in control and therefore 'no party with which to contract.'" The Administration is banking on this legal interpretation. It informed their assessment of the emerging legal and policy issues created by the new financial sanctions in technology environments that are continuously evolving.
Protecting the still-emerging digital asset industry from abuse was high on the agenda Scott Bessent, Secretary of the Treasury, during his remarks. He emphasized the challenge to our democracy from malign illicit actors like North Korea. He stated:
"Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion."
Impact on Founders and Future Implications
In August 2023, the U.S. Department of Justice indicted two founders of Tornado Cash, Roman Storm and Roman Semenov on multiple criminal charges. This move came despite the lifting of sanctions. In May, a Dutch court found co-founder Alexey Pertsev guilty and sentenced him to 5 years and 4 months in prison. This conviction was for unrelated crimes associated with the incident.
The Treasury Department stands steadfast in its commitment to fighting the malign cyber actors who seek to exploit digital assets. While lifting sanctions on Tornado Cash, it reiterated its dedication to restricting North Korea's ability to fund weapons of mass destruction and ballistic missile programs.
"Based on the Administration's review… we have exercised our discretion to remove the economic sanctions against Tornado Cash," stated a spokesperson from the Treasury.