US Treasury Removes Sanctions on Ethereum Mixer Tornado Cash in Policy Shift

The United States Treasury Department has officially lifted sanctions on Tornado Cash, an Ethereum based coin mixing service, undoing a decision made in 2022. This change, announced today, marks a significant shift in the government’s approach to regulating privacy-focused cryptocurrency tools.

The Treasury’s Office of Foreign Assets Control, known as OFAC, had previously blacklisted Tornado Cash, citing its alleged role in facilitating illicit financial activities. However, following a legal challenge and a subsequent court ruling, the department has now reversed its stance, reflecting a broader reconsideration of how sanctions apply to emerging technologies.

In its statement, the Treasury explained that the decision stemmed from a review of the legal and policy questions raised by sanctioning financial activities tied to evolving tech frameworks. The department referenced a Monday filing in the case Van Loon v. Department of the Treasury, where it exercised its authority to delist Tornado Cash. This move comes after a November ruling by a Fifth Circuit judge, who determined that the Treasury had exceeded its powers by targeting the service’s smart contracts. The judge argued that autonomous software does not qualify as property under the law, rendering it beyond the scope of OFAC’s sanctions authority. Despite a request from Department of Justice prosecutors for a 60-day delay, which set a March 17 deadline, the Treasury’s announcement aligns with the court’s findings.

The initial sanctions, imposed in August 2022, were based on claims that Tornado Cash had been used to launder over $7 billion in virtual currency since its inception in 2019. The Treasury pointed to its use by malicious actors, including North Korean hacking groups, as justification. Coinbase, a major cryptocurrency exchange, supported the legal challenge against the sanctions, with its chief legal officer, Paul Grewal, criticizing the government’s delays in addressing the issue. Meanwhile, a separate legal case involving Tornado Cash co-founder Roman Storm continues, with his money laundering trial still pending after a district court judge rejected his motion to dismiss in November.

Balancing Innovation and Security in the Crypto Space

The Treasury’s decision highlights a delicate balance between fostering innovation and addressing security concerns in the digital asset industry. Secretary of the Treasury Scott Bessent emphasized the potential of cryptocurrencies to drive value creation and financial inclusion for Americans. He stressed the importance of protecting the sector from exploitation by groups like North Korea, which has stolen billions through cyberattacks on crypto platforms, while ensuring that regulatory actions do not stifle technological progress. This nuanced approach suggests a shift toward more targeted measures rather than broad sanctions on tools like Tornado Cash.

Interestingly, the service remained operational throughout the sanctions period, a fact that frustrated some lawmakers. Ethereum co-founder Vitalik Buterin even highlighted its utility by revealing he used it to make private donations to support Ukraine’s efforts against Russia. This underscores the practical challenges of enforcing sanctions on decentralized technologies, which operate beyond traditional control mechanisms. The Treasury’s latest move may signal a recognition of these limitations, as well as a willingness to adapt policies to the realities of the blockchain landscape.

For now, the delisting of Tornado Cash closes one chapter in the ongoing debate over privacy, regulation, and security in the crypto world. The Treasury remains focused on combating illicit finance, particularly from state-sponsored actors, but its actions suggest a growing awareness of the need to support innovation.