Tornado Cash Sanctions Here to Stay: US Judge Denies Appeal

A United States Federal Court has dismissed the appeal of several Tornado Cash users attempting to lift sanctions on the cryptocurrency mixer.

“The Court finds that Tornado Cash is an association within the ordinary meaning of the term and is therefore an entity that may be designated per OFAC regulations,” the filing states.

Disagreement on How to Define Tornado Cash

According to an Aug. 18 court filing, US District Judge Robert Pitman has determined that the penalties against cryptocurrency mixer Tornado Cash are valid. He has rejected the request of six users to lift the sanctions against Tornado Cash.

This lawsuit is in response to US authorities imposing a strict measure on Tornado Cash last year.

In August 2022, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) added Tornado Cash to its Specially Designated Nationals and Blocked Persons (SDN) List.

Amid numerous allegations of the mixer’s engagement in money laundering, OFAC enforced the sanction. It mandates reporting all Tornado Cash property in the US or owned by US citizens to the OFAC.

However, the six plaintiffs, who use Tornado, believe that there is confusion over what Tornado Cash really is:

“The parties disagree on how to characterize Tornado Cash. Plaintiffs contend that Tornado Cash is a decentralized, open-source software project comprised of a subset of smart contracts, or “pools,” on the Ethereum blockchain.

The six users advocate against categorizing Tornado Cash as an association. They claim that the designation excludes its “individual founders, developers, members of the DAO, or users, or other persons involved in supporting Tornado Cash.”

Recognizing Tornado Cash as autonomous software rather than an association would fulfill the plaintiff’s goal of exempting it from SDN requirements. “Its users rely on smart contracts that are immutable, autonomous, and self-executing,” the plaintiffs assert.

They claim the decision goes beyond the Department’s authority. They allege that it oversteps its jurisdiction and violates the Free Speech Clause.

The OFAC, on the other hand, characterizes Tornado Cash as an “entity operating a cryptocurrency mixing service.”

Sanctions Imposed Due to Money Laundering Allegations

The OFAC sanctioned Tornado Cash after alleging it enabled $7 billion in illicit funds flow since 2019.

It claimed that a North Korean hacking collective called Lazarus Group funneled over $455 million in stolen funds through Tornado Cash. 

The Horizon Bridge attack in 2022, which resulted in around $100 million in losses, had also been laundered through Tornado Cash.

The sanctions resulted in a notable decrease in activity for Tornado Cash. With the sanctions taking effect, the number of monthly users decreased by 50% from July 2022 to August 2022.