US Court Lifts Tornado Cash Sanctions In A Major Win For Crypto Privacy

Electoral promises often fall short, so when politicians actually deliver, it may come as a welcome surprise. In a landmark ruling, clearly inspired by a recent “wind of change” in the US politics, the US District Court in Texas overturned the sanctions on Tornado Cash imposed by the Office of Foreign Assets Control (OFAC). The court decided that the Treasury Department had overreached by sanctioning the crypto mixing service, which had been accused of aiding money laundering. The initial decision came at the end of November 2024 after an appeal filed by six Tornado Cash users, who argued that the sanctions violated their rights and that blockchain transactions could be traced. The court agreed with the users, stating that the immutable nature of Tornado Cash’s smart contracts made them an exception from the definition of “property” under the International Emergency Economic Powers Act (IEEPA). This final ruling is a major victory for privacy-preserving technologies and the broader crypto community. The price of Tornado Cash’s native cryptocurrency, TORN, surged by over 140% following the news. However, the developer of Tornado Cash, Alexey Pertsev, remains in custody as the Dutch court found him guilty of money laundering charges. Initially launched in December 2019, Tornado Cash quickly became a top decentralized cryptocurrency tumbler, designed to enhance privacy by mixing potentially identifiable funds with others to obscure their origins. The service operates on Ethereum-compatible networks and uses smart contracts for its mixing process. In August 2022, the OFAC blacklisted Tornado Cash, alleging that it had facilitated the laundering of over $7 billion in virtual currencies, including funds linked to the Lazarus Group, a North Korean hacking group. As a result, the service became illegal for US citizens and businesses, leading to the removal of its GitHub repository and the suspension of its developers’ accounts. On August 10, 2022, Pertsev was arrested in Amsterdam on money laundering-related charges. The situation escalated in May 2023, when a hacker gained control of Tornado Cash’s decentralized autonomous organization (DAO) through a malicious proposal. The attacker gained control over the governance tokens and locked votes, ultimately stealing around $2.17 million from the protocol. Surprisingly, the hacker reached out to the Tornado Cash community shortly after and offered to return governance control. The community was divided, with most deciding to agree to the proposal to minimize damages. Fortunately, the hacker handed back control, which helped avoid further damage to the protocol.