A Whirlwind of Change: The Delisting of Tornado Cash

Over the past several years, as U.S. regulators have grappled with the increasing use of cryptocurrency across a spectrum of legitimate and illegitimate commerce, the U.S. Department of Commerce’s Office of Foreign Assets Control (OFAC) — tasked with overseeing the nation’s economic sanctions regimes — has taken on a role in foreign policy enforcement in the cryptocurrency space. A series of actions by OFAC with respect to Tornado Cash, an Ethereum blockchain cryptocurrency “mixer” allegedly used by North Korean hackers to launder proceeds of large-scale cryptocurrency heists, sheds light on one aspect of the enforcement community’s efforts to understand the practical limits of cryptocurrency regulation while navigating the shifting winds of U.S. policymakers’ views on the industry.

Background

In August 2022, OFAC designated Tornado Cash as a Specially Designated National (SDN), meaning it broadly became illegal for U.S. persons to deal in the “property and interests in property” of Tornado Cash. This includes the contribution or provision of funds, goods or services by, to or for the benefit of Tornado Cash and the receipt of any contribution or provision of funds, goods or services from Tornado Cash. Practically speaking, the SDN designation meant that U.S. persons were prohibited from using Tornado Cash.

OFAC sanctioned Tornado Cash under Executive Order (EO) 13694, which targets “malicious cyber-enabled activities,” justifying the designation by citing nearly $7 billion in alleged cryptocurrency laundering accomplished through Tornado Cash. Controversy immediately erupted, as Tornado Cash is itself not an individual or corporate entity, but a noncustodial, decentralized set of smart contracts through which a user can access the software protocol to execute cryptocurrency mixing — not any kind of entity traditionally understood to be sanctionable by OFAC.

OFAC responded by revising its sanctions designation of Tornado Cash in November 2022, citing a second authority, EO 13722 (targeting North Korea and entities doing business with that nation), and in separate guidance describing Tornado Cash as a “person” and “entity” consisting of its founders and other developers, as well as the “Tornado Cash Decentralized Autonomous Organization (DAO).”[1]

Subsequently, a group of plaintiffs composed of U.S.-based Tornado Cash users filed suit against OFAC, arguing that the regulator had overstepped its authority and that Tornado Cash’s open source, self-executing network of software is simply not sanctionable under existing law. Though a federal district court sided with OFAC, granting summary judgment against the plaintiffs, in late 2024 the plaintiffs’ appeal reached the Fifth Circuit Court of Appeals.

Recent Developments

On November 26, 2024, the Fifth Circuit ruled in the plaintiffs’ favor, holding that “immutable smart contracts … are not the ‘property’ of a foreign national or entity” and therefore OFAC “overstepped its congressionally defined authority” by sanctioning Tornado Cash because its immutable smart contracts cannot be blocked pursuant to U.S. sanctions authorized by the International Emergency Economic Powers Act. Van Loon v. Dep’t of the Treasury, 122 F.4th 549 (5th Cir. 2024). The Fifth Circuit remanded the case to the district court, directing judgment in favor of the plaintiffs. However, before such judgment could be rendered by the district court, the Treasury Department filed a motion in the district court on March 18, 2025, requesting in part a stay of the case while OFAC delisted Tornado Cash — a result which would, the Treasury argued, render the case moot because it would “provide[] all the relief that Plaintiffs are entitled to.” The filing emphasized the Fifth Circuit’s holding with respect to immutable smart contracts not qualifying as property, as distinguished from mutable smart contracts, and the fact that the Fifth Circuit declined to issue any holding with respect to whether Tornado Cash could be designated as an entity in the first place. As of March 21, 2025, Tornado Cash had been officially delisted.

The plaintiffs were swift to respond. On March 24, 2025, less than one week after the requested stay and four days following Tornado Cash’s delisting, the plaintiffs filed a reply asserting that OFAC could not “escape … judgment [by the district court] by suspending its challenged conduct” of sanctioning Tornado Cash. The plaintiffs argued that the case is not moot, alleging there has been no suggestion that OFAC would not redesignate Tornado Cash in the future.

Next Steps

It remains to be seen how the district court will react to the latest filings in Van Loon. While Tornado Cash’s delisting has been seen as cause for celebration by many in the cryptocurrency industry, much rests on the coming court decisions and policy formulations by regulators in the next few years. As identified by the plaintiffs, OFAC appears to be attempting (to the extent possible) to preserve its sanctions-related discretion in the cryptocurrency space by using the delisting to render the specific sanctioning at issue in Van Loon moot and prevent any farther-reaching court decisions that may impose restrictions on the otherwise broad bounds of OFAC’s sanctioning authority. This flexibility in sanctioning discretion will be paramount as OFAC seeks to impose and enforce sanctions on the evolving technological and financial sector of cryptocurrency. It is important also to note that none of OFAC or the Fifth Circuit’s recent decisions bear directly on the ongoing criminal prosecutions of Tornado Cash’s founders for money laundering and other offenses, the continuing sanctions designation of one of Tornado Cash’s founders or OFAC’s designation of other cryptocurrency mixers, such as Blender.io and Sinbad.io.