In a dramatic policy reversal that signals a potential sea change in the regulation of decentralized finance, the U.S. Department of the Treasury announced on March 21, 2025 that it has removed economic sanctions against Tornado Cash, the controversial cryptocurrency mixing service that has been under U.S. sanctions since August 2022.
The decision, reflected in the Treasury’s filing in Van Loon v. Department of the Treasury, marks a significant victory for privacy advocates and crypto developers who have long argued that code itself should not be the target of sanctions.
WASHINGTON, DC – MARCH 13: A seal on the exterior of the U.S. Department of Treasury building
Sanctioning Tornado Cash
Tornado Cash is a virtual currency mixer operating on the Ethereum blockchain. It enables anonymous transactions by obscuring the origin, destination, and counterparties involved. By pooling and redistributing funds, Tornado Cash enhances privacy—but this feature has made it a very popular tool for laundering stolen assets, especially in high-profile cyber heists.
On August 8, 2022, the platform was sanctioned by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) under Executive Order 13694 for providing financial, material or technological support for cyber-enabled activities originating outside the U.S. OFAC sanctioned Tornado Cash for “failing to impose effective controls” that prevented malicious actors from laundering funds through the crypto mixer. The activities connected with mixing and laundering the money were considered to pose a significant threat to U.S. national security, foreign policy, and economic stability—mainly when they involve the theft of funds, trade secrets, personal identifiers, or financial data for commercial gain or competitive advantage.
The OFAC designated Tornado Cash for its role in laundering over $455 million in cryptocurrency stolen by the Lazarus Group, a hacking organization linked to North Korea. Tornado Cash mixed over $7.6 billion worth of Ether since its launch in August 2019 up until 2022, according to Chainalysis. Almost 30% of the funds sent through it have been tied to illicit actors.
A Regulatory Rethink
“Based on the Administration’s review of the novel legal and policy issues raised by the use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash,” Treasury stated in its announcement.
As part of this action, over 100 Ethereum wallet addresses associated with Tornado Cash will be removed from the Specially Designated Nationals (SDN) list, effectively ending nearly three years of restrictions.
Treasury Secretary Scott Bessent emphasized the administration’s balanced approach: “Digital assets present enormous opportunities for innovation and value creation for the American people. Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion.”
Legal Precedent Forces Treasury’s Hand
The reversal follows a November 2024 ruling from the U.S. Fifth Circuit Court that OFAC had “overstepped its congressionally defined authority” when it sanctioned the cryptocurrency mixer. Central to the court’s decision was the determination that Tornado Cash’s immutable smart contracts cannot be classified as “property” under the International Emergency Economic Powers Act (IEEPA).
The court reasoned that with immutable smart contracts, “there is no person in control and therefore ‘no party with which to contract,'” according to documents filed by the Treasury Department.
This legal interpretation creates a significant precedent for how decentralized protocols might be regulated in the future, potentially limiting the government’s ability to sanction code rather than individuals.
New Paradigm for Enforcement
Despite lifting sanctions on the platform itself, Treasury officials emphasized their continued commitment to combating illicit activity in the cryptocurrency space, particularly North Korean hacking operations.
“We remain deeply concerned about the significant state-sponsored hacking and money laundering campaign aimed at stealing, acquiring, and deploying digital assets for the Democratic People’s Republic of Korea (DPRK) and the Kim regime,” the Treasury statement noted.
The pivot suggests a potential shift from targeting platforms to focusing on the individual actors exploiting them. This approach has already been demonstrated in cases against Tornado Cash co-founders Roman Storm and Roman Semenov, who were indicted by the U.S. Department of Justice in August 2023, and Alexey Pertsev, who was sentenced by a Dutch court to over five years in prison in May 2024.
Implications for Blockchain Privacy and Compliance
For the cryptocurrency industry, the delisting represents both an opportunity and a challenge. Privacy-focused tools like Tornado Cash, which has been used to launder an estimated $7.6 billion in virtual assets since its creation in 2019, can now potentially operate without the chilling effect of sanctions, although we know that the real effect of sanctions has been minimal.
Cryptocurrency intelligence firms suggest this development will force a rethinking of compliance approaches. Rather than simply avoiding sanctioned platforms, businesses may need to develop more sophisticated methods for identifying and preventing transactions with illicit actors.
The Treasury’s decision ultimately acknowledges the complex reality of regulating decentralized technology: code itself may be neutral, but accountability for how that code is used remains a priority for law enforcement worldwide. This is not an easy task, but regulators need to find answers to these challenges quickly, as the risks are only going to increase with time.
