Overview
On March 21, 2025, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the delisting of Tornado Cash, a digital asset mixer, from the List of Specially Designated Nationals and Blocked Persons (SDN List). The Treasury Department said the delisting was “[b]ased on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments…” The delisting follows a November 26, 2024 ruling by the Fifth Circuit that OFAC exceeded its statutory authority in its designation of Tornado Cash.
OFAC designated Tornado Cash on August 8, 2022 and re-designated it in November 2022. OFAC alleged that the protocol facilitated money laundering by the North Korea-backed Lazarus Group. The sanctions marked the first time OFAC targeted an on-chain decentralized protocol. The announcement sparked significant concern within the digital asset community and eventually prompted multiple lawsuits against the Treasury Department. The government successfully defended the sanctions at the district court level, but lost on appeal before the Fifth Circuit in Joseph Van Loon, et al. v. Dep’t of the Treasury. More specifically, the Fifth Circuit held that the immutable smart contracts that Tornado Cash uses to operate cannot be considered “property” subject to blocking under the International Emergency Economic Powers Act (IEEPA).
Even after the Van Loon decision, significant uncertainty remained about Tornado Cash’s future. The Fifth Circuit decision left several key questions unresolved and another appeal on the same issues, Coin Center et al. v. Sec’y, U.S. Dep’t of the Treasury, et al., remained pending before the 11th Circuit. It was also unclear whether the Trump administration would seek to appeal the Fifth Circuit’s decision to the Supreme Court.
Although the Treasury Department’s announcement appears to resolve some of those questions for the time being, the Trump administration’s decision to delist Tornado Cash, rather than pursue further appeals, may leave the door open to similar sanctions designations in the future. The Treasury Department stated that it “remains committed to using our authorities to expose and disrupt the ability of malicious cyber actors to profit from their criminal activities through the exploitation of digital assets and the digital assets ecosystem.” Treasury also noted that it is “committed to enforcing our sanctions against [North Korea] to constrain the regime’s ability to fund its weapons of mass destruction and ballistic missile programs.”
In addition, after the delisting, the government asked the district court to permit briefing on mootness before the court enters final judgment in Van Loon based on the mandate from the Fifth Circuit. In response, the plaintiffs have claimed that the government is seeking to evade the judgment in order to potentially re-designate Tornado Cash in the future. Notably, in the delisting announcement, the Treasury Department stated that it had “exercised [its] discretion” to delist Tornado Cash, rather than concede that the delisting was the result of the Fifth Circuit’s decision. In the meantime, the government has also asked the 11th Circuit to hold the Coin Center appeal in abeyance until April 21, 2025. OFAC also declined to delist one of the Tornado Cash founders that it previously added to the SDN List and the Department of Justice is continuing its criminal prosecution of the founders for violations of US sanctions and money laundering laws.
Although the delisting of Tornado Cash is a significant development, it remains too early to tell what the long term ramifications of the decision might be.
For additional detail on this development please contact a member of Steptoe’s Economic Sanctions Practice Group or Blockchain and Cryptocurrency Practice Group.
