US Treasury Uses Discretionary Powers to End Sanctions Against Tornado Cash, says “Innovation” Benefits Americans

The U.S. Treasury has ended its sanctions on Tornado Cash, a prominent mixing service, by removing addresses associated with the token, including Ethereum addresses. Under the U.S. Treasury, the department responsible for this decision is the Office of Foreign Assets Control (OFAC). The list of banned addresses is referred to as the Specially Designated Nationals (SDN) list. However, the Treasury Department maintains sanctions on one of Tornado’s founders, Roman Semenov. 

In 2022, OFAC blacklisted Tornado Cash allegedly for facilitating money laundering on its platform. Lazarus, a North Korean hacking group, had used the service to anonymize their stolen money, totaling millions of dollars in stolen tokens. Tornado Cash is a mixer service for Ethereum and allows users to anonymize their coins by randomly mixing them with other coins. Tornado users sued the Treasury when the service was blacklisted. Coinbase financially backed the lawsuit. The Treasury made an official announcement about the delisting of the crypto service: 

“Based on the Administration’s review of the novel legal and policy issues raised by the use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash as reflected in Treasury’s Monday filing in Van Loon v. Department of the Treasury”.

Tornado Cash is a tool that allows users to make their transactions more private. It combines different transactions, making it more difficult for people to track them. Privacy advocates see the service as vital for protecting one’s anonymity and financial security. However, many governments see it as a tool used by hackers to disguise their transactions.

In November 2024, a judge from the Fifth Circuit ruled that a piece of automatic software cannot be classified as property and, therefore, cannot be sanctioned by OFAC. 

Tornado supporters are celebrating the decision by OFAC to drop the blacklisting. They argue that banning Tornado because Lazarus is misusing the service is like banning the internet because Lazarus is using the web to hack crypto wallets. 

The Treasury, however, further stated that it is still concerned about money laundering, particularly the Lazarus group stealing billions from various crypto wallets. It plans to strike a balance between cutting back on crime and giving people room to make critical innovations.  

“Digital assets present enormous opportunities,” said Scott Bessent, secretary of the Treasury, “for innovation and value creation for the American people. Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring the American people can benefit from financial innovation and inclusion”.

Roman Storm, Tornado Cash co-founder, still faces a criminal trial in July for creating protocols and smart contracts. Storm’s lawyer tried to get the case dropped after the November 2024 ruling. However, Judge Katherine Failla denied the request in February, stating that Storm still defied the sanctions list, regardless of the November ruling.

Coinbase helped finance Tornado Cash’s legal defense, claiming the allegations were unreasonable. Brian Armstrong has argued that open source technology benefits citizens and should therefore not be banned.