The U.S. Department of the Treasury has lifted sanctions against Tornado Cash, a decentralized cryptocurrency mixer, effectively legalizing its use for American citizens.
This move reverses the August 2022 sanctions imposed by the Office of Foreign Assets Control, which had accused the platform of facilitating money laundering activities, including transactions linked to North Korea’s Lazarus Group.
Tornado Cash, launched in 2019, is an Ethereum-based protocol that enhances transaction privacy by allowing users to obfuscate the origins and destinations of their cryptocurrency transfers.
While this service caters to individuals seeking financial privacy, it has also been exploited by malicious actors to launder illicit funds.
The Treasury Department had alleged that Tornado Cash was used to launder over $7 billion in virtual currency, including $455 million stolen by the Lazarus Group.
Treasury Secretary Scott Bessent commented on the decision, stating, “Digital assets present enormous opportunities 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 that the American people can benefit from financial innovation and inclusion.”
Free speech issues
Critics argued that sanctioning open-source software infringed upon free speech and technological innovation. In response, a group of Tornado Cash users, supported by cryptocurrency exchange Coinbase, filed a lawsuit challenging the sanctions.
In November 2024, a federal appeals court ruled in favor of the plaintiffs, stating that the Treasury had overstepped its authority. The court emphasized that Tornado Cash’s immutable smart contracts did not qualify as “property” under federal law, thereby falling outside the scope of the International Emergency Economic Powers Act.
Judge Don Willett noted that while the technology could be misused, it was the role of Congress, not the courts, to amend relevant laws.
