Tornado Cash Sanctions Litigation

On August 8, 2022, OFAC sanctioned Tornado Cash, a decentralized cryptocurrency mixer, adding it to the Specially Designated Nationals (SDN) List for allegedly laundering over $7 billion in cryptocurrency, including funds stolen by North Korea’s Lazarus Group. The designation targeted the protocol’s immutable smart contracts and ~40 associated Ethereum wallet addresses, treating them as “property” of a “person” or “entity” under IEEPA, a novel application to open-source code without centralized control. In November 2022, OFAC added 53 Ethereum addresses, including 20 immutable smart contracts. Six Tornado Cash users, backed by Coinbase, filed Van Loon v. Department of the Treasury in the U.S. District Court for the Western District of Texas, challenging OFAC’s authority. The district court upheld the sanctions, accepting that Tornado Cash was an “entity” and its smart contracts were “property.” On November 26, 2024, the Fifth Circuit reversed, holding that immutable smart contracts are not “property” under IEEPA because they lack ownership, control, or exclusivity, as no one can alter or restrict them post-deployment. The court rejected OFAC’s broad definition of “property” (including “contracts” and “services”) and the district court’s vending machine analogy, emphasizing that smart contracts are autonomous code, not owned services. Citing Loper Bright Enterprises v. Raimondo (2024), the court denied OFAC heightened deference. The case was remanded for partial summary judgment under the Administrative Procedure Act. On March 21, 2025, OFAC delisted Tornado Cash and its associated addresses, citing “novel legal and policy issues” and the Fifth Circuit’s ruling, opting not to appeal. The action reflects the Trump administration’s response to judicial limits on IEEPA and support for open-source development. However, criminal charges against Tornado Cash co-founders Roman Storm (trial set for July 14, 2025) and Roman Semenov (sanctioned, at large) for money laundering, sanctions violations, and unlicensed money transmission remain pending. A parallel challenge in the Eleventh Circuit (Coin Center v. Treasury, No. 23-13698) is ongoing, potentially creating a circuit split. As of May 20, 2025, the delisting stands, but regulatory and criminal developments continue.