US Treasury Withdraws Tornado Cash Sanctions, Maintains Legal Action on Developer

On Friday, the U.S. Treasury Department’s sanctions watchdog lifted sanctions from Tornado Cash, a crypto mixing tool previously blacklisted for allegedly aiding North Korea’s Lazarus Group in laundering money from hacks and thefts. This decision comes following a federal appeals court ruled last November that OFAC could not sanction Tornado Cash’s smart contracts as they do not constitute the “property” of any foreign national.

Tornado Cash is Free, But Its Developer Remains Detained

According to a recent press release, the United States Treasury reversed a previous decision by removing the Ethereum coin mixing service Tornado Cash from the Office of Foreign Assets Control (OFAC) list of sanctioned entities. This decision comes after Tornado Cash was initially blacklisted in 2022.

The tool had faced multiple sanctions from the OFAC, prohibiting U.S. entities and individuals from financial interactions with it.

The press release says, “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.”

This decision followed a court ruling on November 26, 2024, by the U.S. Court of Appeals for the Fifth Circuit. The court found that the OFAC went beyond its powers by sanctioning Tornado Cash’s smart contracts, which the court ruled do not qualify as “property” under U.S. law.

Although Tornado Cash is no longer sanctioned, the developer associated with it, known as Semenov, remains under sanctions. However, his sanctions have been adjusted to remove accusations related to cyber activities, though his connection to North Korea keeps him on the sanctions list.

Additionally, Roman Storm, a co-founder of Tornado Cash, is set to face a criminal trial this July. He is charged with allegedly developing the smart contracts and protocols for the service. Meanwhile, another developer involved has also been charged but has not yet been arrested.

Following the announcement, the value of Tornado Cash cryptocurrency surged, recording a 54% increase in the past 24 hours.

Tornado Cash’s Connection with Lazarus Group

Initially sanctioned in August 2022, Tornado Cash was accused of laundering more than $7 billion in cryptocurrency, including significant sums stolen by North Korea’s Lazarus Group. Authorities highlighted that the platform played a key role in laundering funds from several major thefts: over $455 million from the Axie Infinity Ronin Bridge hack, $96 million from the Harmony Bridge heist, and $7.8 million from the Nomad heist.  

Secretary of the Treasury Scott Bessent said, “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.”

It’s important to mention that Tornado Cash continued to operate despite U.S. sanctions and ongoing legal battles, which frustrated many lawmakers. Additionally, Ethereum co-founder Vitalik Buterin openly stated that he used the service to make anonymous donations in support of Ukraine during its conflict with Russia.