Syed Rahman outlines the case
A federal judge in Texas has granted Tornado Cash users’ request that the US government be barred from sanctioning it again.
The US Department of the Treasury removed Tornado Cash from its list of sanctioned entities in March, due to what it said was a “review of the novel legal and policy issues” raised by “evolving technology and legal environments.” But the agency made clear that the removal had been made at its discretion and indicated that it could reverse that decision in the future.
The plaintiffs in the latest case - Ethereum developer Joseph Van Loon and five other Tornado Cash users - said the issue could not be resolved without a guarantee the government would not reintroduce the sanctions. Government lawyers argued that a guarantee was unnecessary as the plaintiffs’ issue had been resolved when Tornado Cash was removed from the list of those sanctioned.
The Texas court found that the Treasury had overstepped its authority when it first levied the sanctions. These had been imposed by the Office of Foreign Assets Control (OFAC) in 2022 after Tornado Cash was used by North Korean hackers and had seen $7 billion in cryptocurrencies laundered through it in three years.
In September 2022, Van Loon and his co-plaintiffs sued the Treasury and OFAC, arguing that sanctioning Tornado Cash was an unprecedented and unconstitutional overreach. They lost that case but were successful with an appeal last November, in which a three-judge panel said the national security legislation cited to support the sanctions covered only people and corporate entities – not software.
Reassurance
The latest judgement can be seen as further reassurance for Tornado Cash, its users and its supporters regarding the threat of sanctions. Yet it is far from the end of the legal problems facing those connected to the mixer. Co-founder Roman Storm will go on trial in July for facilitating money laundering, fellow co-founder Roman Semenov is at large and being sought by US authorities, and Tornado Cash developer Alexey Pertsev is currently appealing against a money laundering conviction in the Netherlands.
But this ruling is not only significant for Tornado Cash. It can be important in terms of the entire legal framing of crypto-related enforcement actions in the US, and potentially elsewhere. It is important to note that a federal court had definitely held that sanctioning open-source software, as distinct from individuals or entities, falls outside the scope of the existing US sanctions regime.
From a UK perspective, this underscores a tension that we are increasingly seeing in cross-border asset recovery and enforcement work – the government attempting to use old legal frameworks to police decentralised technology. This judgment emphasises that open source developers are not automatically liable for how their tools are used. The court recognised that Tornado Cash, as a decentralised software, is not a person or entity. This suggests that crypto projects with genuinely decentralised governance and architecture may have greater resilience, provided that the structure is real and not performative.
