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.

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.

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.