The controversial sanctions placed on the cryptocurrency mixer Tornado Cash by the U.S. Treasury Department are back in the spotlight, especially following a recent court ruling that could influence how future administrations handle similar cases. The fight over Tornado Cash, its developers, and its associated smart contracts has been a long and tangled legal battle. Now, with the possibility of a new presidential administration under Donald Trump, the fate of Tornado Cash could take an entirely different direction.
The Court Ruling: A Setback for the Treasury?
On November 26, 2024, the U.S. Court of Appeals for the Fifth Circuit issued a ruling that could change the trajectory of the Treasury’s sanctions regime. The court determined that the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) overstepped its legal authority when it sanctioned certain smart contracts tied to Tornado Cash in 2022.
The ruling did not necessarily end the case, but it significantly impacted the legal standing of the Treasury’s decision. The six plaintiffs, backed by major cryptocurrency platform Coinbase, now have a clearer path to challenge the sanctions. With a new administration taking office in 2025, the case could see significant shifts in policy or enforcement.
According to Bill Hughes, Senior Counsel at ConsenSys, the ruling is unlikely to immediately force changes, as the case could be sent back to lower courts, where more motions and deliberations could extend the process for months or even years. Still, Hughes suggests that the new political climate under President Donald Trump might influence how the Treasury approaches this issue.
Trump’s Potential Impact on Tornado Cash Sanctions
With Donald Trump poised to return to the White House in 2025, the question of how his administration will handle crypto-related sanctions is gaining traction. Hughes speculates that Trump’s Treasury Department might adopt the court’s reasoning regarding the immutability of Tornado Cash’s smart contracts.
“I actually think under a Trump administration, it’s more likely that this opinion will be adopted as Treasury policy,” Hughes said, adding that any changes to Tornado Cash’s sanction status would likely be delayed until Trump takes office.
Hughes further noted that the key issue in question is how “hawkish” the Trump administration will be on national security concerns related to cryptocurrency, especially in light of sanctions aimed at North Korea, which the U.S. Treasury connected to Tornado Cash in 2022. Under Biden, the Treasury had alleged that the mixer facilitated over $7 billion in transactions, including crypto funds laundered by the North Korean-affiliated Lazarus Group.
Trump’s approach to sanctions involving North Korea may differ from Biden’s, considering Trump’s past rhetoric and relationship with Kim Jong Un. In 2018, Trump famously claimed that he and the North Korean leader “fell in love” after exchanging letters and meeting in person. However, it remains unclear how this history might impact his administration’s stance on crypto sanctions.
The Ongoing Legal Battles: Tornado Cash Developers and Lawsuits
The legal challenges surrounding Tornado Cash are far from over. In addition to the Treasury’s sanctions, the developers of the mixer are facing serious legal trouble. In 2023, the U.S. Department of Justice (DOJ) filed criminal charges against Roman Storm and Roman Semenov, the co-founders of Tornado Cash, accusing them of facilitating money laundering.
Storm was arrested and is set to go to trial in April 2025, shortly after Trump takes office. Meanwhile, Semenov remains a fugitive, with the FBI placing him on its most-wanted list. Legal experts believe that the case against Storm is likely to proceed to trial, and depending on the outcome, the crypto community may push for Trump to either pardon Storm or commute his sentence.
Elsewhere, Tornado Cash co-founder Alexey Pertsev faces legal consequences in the Netherlands. In 2023, he was sentenced to over five years in prison for his role in the operation of Tornado Cash. Pertsev’s legal team is appealing the conviction, arguing that the ruling was unfair and politically motivated.
The Coin Center Lawsuit: Challenging Sanctions on Crypto Mixers
In addition to the criminal cases against the developers, the cryptocurrency advocacy group Coin Center has filed a lawsuit against the U.S. Treasury Department. The lawsuit challenges the sanctions imposed on Tornado Cash, arguing that the mixer itself, or its associated smart contracts, should not be subject to U.S. sanctions.
The Coin Center case echoes some of the arguments made by the plaintiffs in the recent Fifth Circuit ruling, which also questioned the legal grounds for sanctioning immutable smart contracts. While the Treasury’s sanctions were primarily framed as a national security measure, critics argue that they effectively penalize a technology that could have legitimate uses, not just for illicit activity.
What’s Next for Tornado Cash and the Crypto Industry?
As the legal battles surrounding Tornado Cash continue to unfold, the outcome will have far-reaching implications for the cryptocurrency industry and the regulatory landscape. If the Fifth Circuit ruling stands, it could set a precedent for how the U.S. Treasury handles other decentralized technologies and smart contracts in the future.
For now, Tornado Cash remains under heavy scrutiny, with its developers facing criminal charges and civil lawsuits. But the possibility of a policy shift under a Trump administration raises important questions about how the Treasury will approach this case in the coming years. Will the sanctions be relaxed, or will the Treasury continue to push forward with aggressive enforcement?
Crypto advocates will be watching closely as the situation develops, especially since the case touches on larger issues of decentralization, digital privacy, and the scope of government control over emerging technologies. With President Trump poised to bring new leadership to the Treasury, the next chapter in the Tornado Cash saga is likely to be a defining moment for crypto regulation in the U.S.
