Court Bars OFAC From Reinstating Tornado Cash Sanctions

A federal court has permanently barred the U.S. Treasury from reimposing sanctions on crypto mixer Tornado Cash, delivering a definitive victory for crypto privacy advocates.

Judge Robert Pitman of the U.S. District Court for the Western District of Texas updated and finalized amendments on Monday, ruling that the Treasury's actions were "unlawful" and placing an order that compels the Treasury to be "permanently enjoined from enforcing it."

The ruling explicitly rejected the government's attempt to avoid a final judgment after it voluntarily lifted sanctions on Tornado Cash in March.

"After the 5th Circuit ruled against the government in November, it repeatedly tried to avoid entry of a final judgment," Coinbase Chief Legal Officer Paul Grewal tweeted, sharing a copy of the amended rulings. "Today the Court said no to this nonsense."

With the ruling, the Office of Foreign Assets Control (OFAC) would now be legally prohibited from "re-instating the original sanctions," Grewal noted.

Court action

Treasury officials had claimed the case was moot following their "discretionary" delisting of Tornado Cash.

But Judge Pitman applied a precedent, finding that Treasury officials could potentially "seek to 'reenact precisely the same [designation]' in the future."

This accounts for the second part of the court's mootness exception test, which allowed the case to reach a final judgment.

A "mootness exception test" helps courts decide if they should rule on cases, even after issues look like they've been resolved.

The decision comes three weeks after the DOJ announced that it would no longer pursue criminal charges against crypto mixing services, unless they’re involved in criminal activities.

What Are Coin Mixers and How Do They Work?

Coin mixers have captured the attention of both the cryptocurrency community and regulators as the battle for privacy ramps up. In 2021, the founder of coin mixer Bitcoin Fog was arrested on charges including money laundering and operating a money transmission business without a license. A year later, the U.S. Treasury Department issued sanctions against Tornado Cash, an Ethereum coin mixing service, effectively banning Americans from using it. In a landmark ruling in November 2024, the U.S. Fif...

Smart contracts not property

The case stems from OFAC's August 2022 decision to sanction Tornado Cash, placing it on its Specially Designated Nationals and Blocked Persons list.

OFAC alleged that Tornado Cash facilitated over $7 billion in money laundering, including funds linked to North Korean hackers.

This action marked the first time U.S. authorities had sanctioned open-source software protocols rather than individuals or organizations.

Fifth Circuit Rules OFAC Overstepped in Sanctioning Tornado Cash's Immutable Smart Contracts

The U.S. Fifth Circuit Court ruled Tuesday that the Treasury overstepped by sanctioning Tornado Cash’s immutable smart contracts, stating the autonomous software cannot be classified as property. The Fifth Circuit held that when smart contracts are immutable—meaning no entity can modify or control them—they cannot be classified as "property" subject to sanctions under existing law. The decision reverses a lower court ruling and marks a significant win for privacy advocates and blockchain develop...

In November 2024, the Fifth Circuit Court of Appeals ruled that OFAC had exceeded its authority under the International Emergency Economic Powers Act.

At the time, the court determined that immutable smart contracts "are not property because they are not capable of being owned," adding that over a thousand participants engaged in a "trusted setup ceremony" which prevented any updates or controls over Tornado Cash's core codebase.

The Fifth Circuit ruling established a precedent for how blockchain protocols are treated under U.S. law,  potentially reshaping how regulators approach decentralized finance services.