The US Treasury Department’s recent decision to delist Tornado Cash from its sanctions list has sparked a new wave of legal debate, particularly around whether the case against the crypto mixer should still proceed. After removing Tornado Cash and its associated smart contract addresses from the Specially Designated Nationals (SDN) list on March 21, the Treasury argued that the lawsuit brought against it has become irrelevant, stating, “this matter is now moot.”
Tornado Cash was originally sanctioned in August 2022 by the Treasury’s Office of Foreign Assets Control (OFAC), which accused the protocol of facilitating crypto laundering activities linked to North Korea’s Lazarus Group. This action prompted a lawsuit from several Tornado Cash users, supported by Coinbase, who contended that the sanctions were unlawful and overreaching.
Following an initial court ruling in favor of Tornado Cash, the Treasury retracted its sanctions, but legal experts remain unconvinced that the case is settled. According to Coinbase’s chief legal officer Paul Grewal, the government’s move to declare the lawsuit moot is premature and lacks legal grounding. He argued, “After grudgingly delisting TC, they now claim they’ve mooted any need for a final court judgment. But that’s not the law, and they know it.”
Grewal referenced the principle of voluntary cessation, which holds that a case is not automatically moot if the challenged behavior could reasonably occur again. He pointed to a recent Supreme Court decision in 2024 involving Yonas Fikre, a US citizen removed from the No Fly List. The Court ruled that simply taking Fikre off the list didn’t resolve the legal challenge, as the government had offered no guarantee the ban wouldn’t be reinstated.
Applying this precedent to the Tornado Cash situation, Grewal highlighted the absence of any assurance from the Treasury that it will not impose sanctions on Tornado Cash in the future. “That’s not good enough, and will make this clear to the district court,” he emphasized.
The legal battle dates back to September 2022, when six Tornado Cash users, led by Ethereum developer Preston Van Loon, initiated a lawsuit against the Treasury, with Coinbase lending its support. Shortly after, Coin Center, a prominent crypto policy advocacy group, filed a similar challenge.
While a Texas federal judge initially ruled in favor of the Treasury in August 2023, labeling Tornado Cash as an entity eligible for designation under OFAC rules, the case took a turn in November. An appellate court found that sanctioning Tornado Cash’s immutable smart contracts violated legal boundaries, resulting in a decision that forced the Treasury to lift the sanctions by March.
Despite the protocol’s removal from the sanctions list, Tornado Cash’s founders continue to face serious legal issues. Roman Storm and Roman Semenov, co-founders of the project, were charged in August 2023 with facilitating over $1 billion in crypto laundering. Semenov remains on the FBI’s most wanted list, while Storm, released on a $2 million bond, is expected to stand trial in April. Meanwhile, developer Alexey Pertsev was recently freed from pretrial detention in the Netherlands as he appeals his money laundering conviction.
Although the US Treasury’s delisting appears to signal an end, the legal complexities surrounding Tornado Cash are far from resolved, leaving key questions unanswered about how sanctions, decentralized technologies, and due process will intersect in the future.
By Alejandro Silva Ramírez, Crypto Analyst & Columnist