On March 21, 2025, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) officially lifted sanctions on Tornado Cash, the decentralized cryptocurrency mixer it had blacklisted in August 2022. In a brief but notable update to its sanctions list, OFAC removed Tornado Cash's associated addresses, effectively reversing one of the Biden administration's most controversial enforcement actions in the crypto space.
This marks a significant turning point in the multi-year legal and regulatory battle over whether open-source smart contracts can be sanctioned like entities under the International Emergency Economic Powers Act (IEEPA). It also reflects the Trump administration's response to an appellate court decision that questioned the prior administration's legal basis for its original designation.
A Brief Recap: OFAC's 2022 Action
The Biden administration's OFAC initially sanctioned Tornado Cash on August 8, 2022, citing the protocol's alleged use by North Korean hacking group Lazarus to launder hundreds of millions of dollars in stolen crypto. Unlike earlier designations targeting individuals or centralized entities, OFAC's Tornado Cash listing named only a decentralized application and roughly 40 associated wallet addresses. No individual was sanctioned in the initial action.
The legal theory was novel and aggressive: that a set of immutable, self-executing smart contracts on the Ethereum blockchain could constitute "property" subject to blocking under IEEPA, and that Tornado Cash itself qualified as a "person" or "entity" under the statute. As we noted in our earlier articles (here and here), these arguments strained the definitions set forth in the relevant executive orders and Treasury regulations. OFAC treated a decentralized protocol—devoid of centralized control, ownership, or a corporate form—as if it were a conventional legal entity.
The crypto industry reacted with confusion and concern. Privacy advocates decried the move as an overreach, and some lawmakers publicly questioned whether the action complied with due process. Developers feared that publishing or contributing to open-source code might subject them to sanctions risk, despite FinCEN guidance distinguishing between mere software developers and money transmitters.
The Legal Challenge: Van Loon v. Treasury
The sanctions were promptly challenged in court. In Van Loon v. Treasury, a group of Tornado Cash users—represented by a legal team funded by Coinbase—filed suit, arguing that OFAC had exceeded its authority. The district court sided with the government, accepting the theory that Tornado Cash was an entity and its smart contracts were blockable property.
But the Fifth Circuit reversed. In a November 2024 decision, the appellate court found that OFAC had overstepped its authority. The court held that the immutable smart contracts comprising Tornado Cash could not be classified as "property" under IEEPA because they lacked the hallmarks of ownership, control, and exclusivity. Once deployed, these contracts could not be changed, deleted, or restricted. No person or entity—including Tornado Cash's original developers—had the ability to control their operation.
The court also rejected the district court's vending machine analogy, which suggested that smart contracts were like machines that autonomously performed transactions and thus constituted unilateral contracts. The Fifth Circuit took a more pragmatic view: a vending machine has an owner; Tornado Cash's smart contracts do not.
Treasury's Response
Rather than appeal the Fifth Circuit's ruling, President Trump's Treasury Department charted a different course. Its March 2025 delisting notice acknowledged the "novel legal and policy issues" raised by the case and stated that OFAC had chosen to exercise its discretion in lifting the sanctions.
The implications are significant. OFAC's authority under IEEPA is broad, but not boundless. The Fifth Circuit's ruling draws a meaningful line between sanctioning people and entities versus sanctioning autonomous code. It reaffirms that congressional authority is required to expand these powers into uncharted digital territory.
It also signals a major win for the open-source development community, a priority of the Trump administration. The fear that writing or publishing smart contract code could expose developers to crippling sanctions appears, at least for now, to have been overstated. The decision preserves the distinction between offering a service and creating a tool—a distinction that FinCEN and other regulators have historically recognized.
What Now?
Despite the delisting, the broader Tornado Cash saga is far from over. Criminal charges against the protocol's co-founders remain pending. Roman Storm, one of the developers, is scheduled to stand trial on July 14, 2025, on charges of money laundering, sanctions violations, and operating an unlicensed money-transmitting business. Roman Semenov, another alleged founder, was separately sanctioned by OFAC and remains at large.
The delisting also doesn't signal that the Trump administration will turn a blind eye to illicit finance. The Treasury Department recently reiterated its commitment to targeting the use of crypto in sanctions evasion and money laundering, particularly by state actors like North Korea. But it may have to find more precise legal tools to do so than had been wielded previously.
In the end, the lifting of sanctions on Tornado Cash represents more than a procedural update. It's a recognition that immutable, decentralized technologies pose unique legal challenges that don't always fit neatly within the boundaries of existing laws. It also underscores the importance of judicial review as a check on administrative overreach, particularly in fast-evolving areas like blockchain and digital assets. Last, it is yet another signal that the current administration will view digital assets more favorably than has been done in the past.
For fintechs and developers, the message is mixed but hopeful. The boundaries of regulatory authority are still being drawn, but at least in this instance, the courts and the current administration have promoted, and not stifled, innovation.