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U.S. Treasury Lifts Sanctions on Tornado Cash After Court Ruling

In a major policy shift, the U.S. Treasury Department has announced the removal of sanctions against Tornado Cash

March 25, 2025

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U.S. Treasury Lifts Sanctions on Tornado Cash After Court Ruling

In a major policy shift, the U.S. Treasury Department has announced the removal of sanctions against Tornado Cash, a cryptocurrency mixing service previously accused of aiding cybercriminal activity, particularly laundering operations linked to North Korea's Lazarus Group.

The decision follows a comprehensive legal and policy review, as well as a significant court ruling that questioned the federal government's authority to sanction decentralized technologies.

Background: Why Tornado Cash Was Sanctioned

Tornado Cash is a cryptocurrency mixer—a protocol that anonymizes transactions by pooling funds and redistributing them, making it harder to trace individual assets. It was developed using immutable smart contracts deployed on the Ethereum blockchain.

In August 2022, the Treasury’s Office of Foreign Assets Control (OFAC) added Tornado Cash to the Specially Designated Nationals (SDN) list, citing its alleged use in laundering over $7.6 billion worth of virtual assets since 2019. OFAC specifically accused the service of enabling North Korea's state-backed Lazarus Group to obfuscate the source of stolen cryptocurrency funds.

Legal Turning Point: Court Rules Against OFAC

The decision to lift the sanctions stems from a November 2024 ruling by the U.S. Fifth Circuit Court, which determined that OFAC overstepped its authority in its designation of Tornado Cash.

The court’s reasoning focused on a key legal distinction: Tornado Cash operates through immutable smart contracts that no person or entity can control once deployed. According to the court, these smart contracts do not constitute “property” under the International Emergency Economic Powers Act (IEEPA)—the law that underpins OFAC’s sanctions authority.

“With respect to immutable smart contracts, the court reasoned, there is no person in control and therefore ‘no party with which to contract,’” the Treasury noted in follow-up documentation.

This legal interpretation made it clear that applying traditional sanctions tools to decentralized and permissionless blockchain software presents a complex legal challenge.

Treasury’s Updated Stance and Policy Position

In response to the ruling and evolving legal considerations, the Treasury stated:

“Based on the Administration's review of the novel legal and policy issues raised by 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.”

Alongside the removal of Tornado Cash from the SDN list, the Treasury also delisted over 100 associated Ethereum wallet addresses that were previously flagged.

While lifting the sanctions, the Treasury reaffirmed its commitment to countering malicious cyber activities:

“We remain committed to using our powers to disrupt the ability of malicious actors, including North Korea, to exploit the digital assets ecosystem to fund weapons of mass destruction and missile programs.”

Treasury’s Vision: Supporting Innovation While Mitigating Risk

The announcement signals a balancing act between regulating digital assets and fostering innovation in the rapidly evolving cryptocurrency landscape.

“Digital assets present enormous opportunities for innovation and value creation for the American people,” said Scott Bessent, Secretary of the Treasury.
“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.”

Legal and Enforcement Actions Still Ongoing

While sanctions have been lifted from the protocol and wallet addresses, legal actions against individuals associated with Tornado Cash continue.

  • In May 2024, a Dutch court sentenced Alexey Pertsev, one of the co-founders of Tornado Cash, to 5 years and 4 months in prison for money laundering-related charges.

  • In August 2023, Roman Storm and Roman Semenov, the other two co-founders, were indicted by the U.S. Department of Justice for similar charges.

These cases focus on the developers’ roles in facilitating or profiting from illegal uses of the tool, rather than on the decentralized software itself.

Final Thoughts

The Tornado Cash decision is a landmark moment in the intersection of cryptocurrency, law, and national security. It underscores the challenges regulators face in applying existing frameworks to decentralized technologies and highlights the importance of clear legal definitions when it comes to blockchain protocols.

As the U.S. continues to craft its digital asset policy, this case may serve as a precedent for how decentralized tools are treated under the law—especially when no central actor controls the platform in question.