- A federal court has permanently barred the U.S. Treasury from reimposing sanctions on Tornado Cash
- The court ruled that the Treasury’s actions were “unlawful” and that the case was not moot despite the protocol’s delisting
- This decision sets a significant precedent for the treatment of decentralized, open-source protocols under U.S. sanctions law.
In a landmark ruling, the U.S. District Court for the Western District of Texas has prohibited the Treasury Department from reinstating sanctions on Tornado Cash. The court found that the Treasury’s previous actions exceeded its authority and that the case remained relevant despite the protocol’s removal from the sanctions list. The decision is a major win for privacy enthusiasts and reinforces the illegal nature of the Treasury’s actions.
First Targeting of a Decentralized Protocol
In August 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, alleging that it had been used to launder over $7 billion in virtual currency since its inception in 2019, including funds stolen by North Korea’s Lazarus Group.
The sanctions marked the first time the U.S. government had targeted a decentralized protocol, raising concerns within the crypto community about the implications for open-source software and financial privacy. In response, six users of Tornado Cash, supported by the cryptocurrency exchange Coinbase, filed a lawsuit challenging the sanctions.
Smart Contracts Not Property
In November 2024, the Fifth Circuit Court of Appeals ruled that the Treasury had overstepped its authority by sanctioning Tornado Cash, stating that the protocol’s immutable smart contracts did not constitute “property” under federal law . Despite this ruling, the Treasury did not immediately lift the sanctions.
In March 2025, OFAC finally removed Tornado Cash from its Specially Designated Nationals and Blocked Persons (SDN) list, claiming the decision was discretionary and not a result of the court’s ruling. The plaintiffs argued that this move did not guarantee that the Treasury would refrain from reimposing sanctions in the future, leading to Judge Robert Pitman issuing a final judgment this week, which declared the Treasury’s actions unlawful and permanently enjoining the agency from enforcing sanctions against Tornado Cash. Judge Pitman emphasized that the case was not moot, as the issue was “capable of repetition while evading review.”
Tornado Cash Could Still be Targeted
This ruling is considered a significant victory for advocates of financial privacy and the open-source community. It sets a precedent that decentralized protocols, which operate autonomously without centralized control, may not be subject to sanctions in the same manner as traditional entities. However, the decision also highlights the challenges regulators face in addressing illicit activities facilitated by emerging technologies.
While the court’s decision limits the Treasury’s ability to sanction Tornado Cash, it does not preclude future regulatory actions against similar platforms, especially if they are found to be involved in unlawful activities. The ruling underscores the need for updated legal frameworks that can effectively address the complexities of decentralized technologies without stifling innovation.
