U.S. Federal Court Blocks Reinstatement of Tornado Cash Sanctions

A U.S. federal district court has formally prohibited the U.S. Treasury Department from reimposing sanctions previously levied against crypto mixer Tornado Cash.

The ruling limits the authority of the Office of Foreign Assets Control (OFAC) to reintroduce those restrictions. Moreover, the decision could have broader implications for decentralized applications and future policymaking around crypto transaction anonymization.

In addition, the court ruled that when imposing sanctions, the agency must strictly adhere to formal notification procedures and account for potential legal consequences. The judge noted that the Treasury’s attempt to delay a final resolution after removing Tornado Cash from the sanctions list appeared to be an effort to preserve the option of reinstating restrictions.

Congratulations to the brave plaintiffs who had the courage to stand up to their own government for their rights under law. We celebrate so much vapid nonsense in our culture; these are the less famous heroes who deserve our attention and gratitude,

said Paul Grewal,
Chief Legal Officer at Coinbase.

However, the ruling applies only to the reinstatement of prior sanctions. It does not prevent OFAC from imposing new restrictions, provided that any future actions strictly comply with the Administrative Procedure Act (APA). 

This legal nuance has sparked mixed reactions within the crypto community, with some expressing concerns about the potential for renewed enforcement efforts.

Related: What Mixers Still Operate After the Tornado Cash Shutdown?

In 2022, Tornado Cash came under intense scrutiny from U.S. authorities following allegations that it facilitated money laundering for North Korea’s Lazarus Group. At that time, OFAC imposed sanctions on the platform, restricting user access and creating a precedent in which open-source code itself became subject to enforcement.

A group of developers and legal advocates, including Tornado Cash operators and independent privacy specialists, challenged the sanctions. Later, Coinbase and other major players in the crypto industry backed their efforts. Taken together, these events, including the latest court decision, signal the start of a new era in U.S. regulatory policy toward decentralized projects.

Read more: Do Contemporary Regulators Draw from Inquisition Practices?

The next step for the industry, following this pivotal legal shift, could be the introduction of comprehensive federal legislation that clearly outlines the operations and regulatory frameworks for both centralized and decentralized blockchain apps.