The United States District Court for the Western District of Texas sided with the U.S. Treasury on August 17, 2023, in a lawsuit disputing the legitimacy of sanctions added by the Department of the Treasury’s Office of Foreign Assets Control against Tornado Cash in its Specially Designated Nationals and Blocked Persons list in August 2022.
All arguments put forward by the plaintiffs in this lawsuit backed by Coinbase have been dismissed by the court in a 25-page document.
Stepping back, Tornado Cash is a privacy focused blockchain tool that enables users to transact on the blockchain while protecting their privacy, the latter being a pain point of Ethereum or Bitcoin that publicly leak more information about an address history of transactions than would a traditional financial actor such as a bank. In short, the court’s decision now makes it nearly impossible for Ethereum users in the U.S. to feel confident in their right to use privacy tools like Tornado Cash when transacting with cryptocurrencies.
Tornado Cash Is An Equal Access On-Chain Privacy Tool
The Treasury blames Tornado Cash for facilitating money laundering to the tune of what they claim to be over $7 billion since the software’s creation in 2019. Although money laundering is only one use case for mixers and other privacy tools, roughly half a billion of the allegedly laundered funds were attributed to the Lazarus Group, an infamous collective of hackers affiliated with the Democratic People’s Republic of Korea.
The decision to sanction Tornado Cash as a whole has been highly controversial and disputed, especially given the popularity of this platform among regular users of cryptocurrency. Multiple lawsuits against the sanctions followed, notably by Coin Center, a leading U.S. cryptocurrency advocacy group. The outcome is still pending in District Court.
Shortly after Tornado Cash was sanctioned, one of its core developers, Alexey Pertsev, was arrested in the Netherlands. He spent eight months in jail before his conditional release in April 2023. He is awaiting trial.
A few months before Tornado Cash, in May 2022, U.S. Treasury issued its first-ever sanctions on a virtual currency mixer called Blender.io for processing over $20 million of Lazarus Group’s Axie Inifinity hack proceeds.
