Introduction to Tornado Cash Sanctions
The US Treasury Department’s Office of Foreign Assets Control (OFAC) has faced a significant setback in its efforts to regulate the crypto mixing service Tornado Cash. A US federal court has ruled that OFAC cannot restore or reimpose sanctions against the platform. This decision comes after a long-standing legal battle between Tornado Cash users and the Treasury Department.
Background of the Case
In August 2022, OFAC sanctioned Tornado Cash, accusing the protocol of helping launder crypto stolen by the North Korean hacking collective, the Lazarus Group. The agency added the platform’s smart contract addresses to its Specially Designated Nationals and Blocked Persons (SDN) list. However, in March 2023, OFAC dropped Tornado Cash from the sanctions list, arguing that the matter was "moot" after a court ruled in favor of the platform in January.
Court Ruling
Austin federal court judge Robert Pitman stated in an April 28 judgment that OFAC’s sanctions on Tornado Cash were unlawful. The judge ruled that the agency was "permanently enjoined from enforcing" sanctions against the platform. This decision prevents OFAC from re-sanctioning Tornado Cash or putting it back on the blacklist. The court’s ruling is a significant win for Tornado Cash users, who argued that OFAC’s actions were "not in accordance with law."
Impact of the Ruling
The ruling has significant implications for the crypto industry, as it limits the power of OFAC to impose sanctions on crypto platforms. The decision also raises questions about the regulation of crypto mixing services, which are used to anonymize cryptocurrency transactions. Tornado Cash users led by Joseph Van Loon had sued the Treasury, arguing that OFAC’s actions were unlawful and would have a chilling effect on the development of crypto technology.
Related Developments
In a related development, the DeFi Education Fund has petitioned White House crypto czar David Sacks to have prosecutors drop charges against Tornado Cash co-founder Roman Storm. Storm was charged in August 2023 with helping launder over $1 billion in crypto through the protocol, and his trial is still set for July. The group argues that the Department of Justice is attempting to hold software developers criminally liable for how others use their code, which they believe is "not only absurd in principle, but it sets a precedent that potentially chills all crypto development in the United States."
Conclusion
The US federal court’s ruling on Tornado Cash is a significant development in the ongoing debate about the regulation of crypto platforms. The decision limits the power of OFAC to impose sanctions on crypto mixing services and raises questions about the regulation of crypto technology. As the crypto industry continues to evolve, it is likely that we will see more legal battles between regulators and crypto platforms. The outcome of these battles will have significant implications for the future of the crypto industry and its ability to innovate and grow.
