On 21 March 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) removed Tornado Cash, a virtual currency mixer, from its list of Specially Designated Nationals and Blocked Persons (SDN List), marking a key milestone in sanctions related to virtual currencies. This removal marks the resolution to an open question from the cryptocurrency industry following the Fifth Circuit of the U.S. Court of Appeals Van Loon Judgment issued on 26 November 2024, where the court held that Tornado Cash’s immutable smart contracts (i.e., its lines of privacy-enabling software code) are not the “property” of a foreign national or entity and therefore cannot be blocked.[1] As suggested by the judge in this case, Congress may choose to update IEEPA to target modern technologies like crypto-mixing software; however, absent such changes, OFAC may have difficulty targeting decentralized technology such as mixers, and, more broadly, may have more limited ability to target novel technologies that might nonetheless pose serious national security risks.
This alert discusses the structure of the U.S. financial sanctions regime and its novel interplay with an entity like Tornado Cash and provides insights into what this could mean for the future of sanctions and the virtual currency industry.
Background
To understand the implications of Tornado Cash’s removal from the SDN List, one must first understand the role of mixers, the scope of laws that underpin the U.S. sanctions regime, and the conditions under which OFAC originally targeted Tornado Cash.
What Is a Mixer?
A mixer is a technology used to increase anonymity in crypto transactions by pooling transactions from multiple users and therefore disrupting the flow of funds that would otherwise enable investigators to identify the original source of funds. A mixer allows for a cryptocurrency wallet to credit a reserve funded by multiple cryptocurrency wallet holders and debit the equal amount to any cryptocurrency wallet, thus breaking the traceable chain of ownership. While there are legitimate use cases for mixers (e.g., shielding an individual’s net worth from the public, keeping political donations private), mixers are also associated with money laundering as they can be used hide illicit activity.[2]
Unlike some popular mixers, which are essentially centralized unlicensed money services businesses run by an individual or organization, Tornado Cash is a fully decentralized, immutable, open-source mixer application. It is a self-executing smart contract code on the Ethereum blockchain that, once deployed, could be used by anyone. The founders can neither exert control nor prevent users from interacting with the protocol.
U.S. Sanctions Authorities
Nearly all current U.S. sanctions programs are implemented pursuant to the International Emergency Economic Powers Act (IEEPA). Enacted in 1977, IEEPA grants power to the president to declare a national emergency regarding the economy, foreign policy, or national security of the United States. IEEPA provides the president the ability to prevent dealings in property of persons identified pursuant to a presidential emergency. Nearly all current U.S. sanctions programs originate with a presidential Executive Order (EO) issued pursuant to IEEPA that further delegates power to the U.S. Department of the Treasury to determine the parties that threaten U.S. national security and foreign policy interests. OFAC identifies sanctions targets and publishes updates to relevant official sources, including the SDN List.
Summary of OFAC’s Tornado Cash Actions
On 8 August 2022, OFAC added Tornado Cash to the SDN List pursuant to EO 13694, as amended, for having materially assisted in cyber-enabled activity that threatened U.S. interests. The press release associated with the action stated that Tornado Cash had been used by the Lazarus Group, a DPRK state-sponsored hacking organization that itself had been designated by OFAC in 2019.[3] OFAC redesignated Tornado Cash on 8 November 2022 pursuant to DPRK-related authorities as well as EO 13694.[4] The effect of the OFAC designation blocks all property and interests in property of Tornado Cash and prohibits U.S. persons from any and all dealings with Tornado Cash, directly or indirectly. The designation generated practical questions regarding how to comply as well as whether it is appropriate for what is essentially computer code to be targeted by sanctions.
Van Loon Decision
Six Tornado Cash users sued the U.S. government in response to the OFAC designation. While the original case had a favorable outcome for the U.S. Department of the Treasury, the plaintiffs ultimately prevailed in November 2024 (herein the “Van Loon decision”). The Van Loon decision stated that “Tornado Cash’s open-source, self-executing software is not sanctionable under the Act (as opposed to the rogue persons and entities who abuse it).”[5] The Van Loon decision is one of the first cases to apply the 2024 Loper Bright v. Raimondo[6] decision that overturned the 40-year-old Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.[7] doctrine, which otherwise would have granted deference to administrative agencies like OFAC for reasonable interpretations of ambiguous federal statutes (like IEEPA), thus limiting OFAC’s reach and potential future ability to target novel technologies posing serious national security risks with sanctions. The court ruled that immutable smart contracts that underpin the Tornado Cash application cannot be considered “property” under a common understanding of the term. While the Van Loon decision acknowledges the national security goals of U.S. sanctions, the way the U.S. government sought to target illicit activity was not supportable.
Key Takeaways
At the time of Tornado Cash’s designation in 2022, there were concerns regarding the chilling effect that sanctions could have on future innovation in the virtual currency space. While those concerns have been allayed somewhat given the Trump administration’s positive stance on the virtual currency market, the Van Loon decision and eventual OFAC delisting surfaces additional discussion for the future of sanctions and the virtual currency, industry including the following:
- The U.S. Department of the Treasury has the challenging task of balancing innovation and national security. According to the press release that accompanied the 21 March 2025 delisting: “’Digital assets present enormous opportunities for innovation and value creation for the American people,’ said Secretary of the Treasury Scott Bessent. ‘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.’”[8]
- While its removal from the SDN List eliminates the prohibition for U.S. persons to carry out activity related to Tornado Cash and to unblock and return any frozen property, questions remain regarding the potential risk associated with Tornado Cash from money laundering and sanctions evasion perspectives. Parties will need to evaluate their own risk appetites to determine the appropriate handling for transactions or accounts that otherwise had a touchpoint to Tornado Cash.
- As a practical matter, industry standard analytics providers have recategorized Tornado Cash as a mixer, which will still likely generate a high-risk alert (depending on a firm’s settings), but will not be treated as “sanctioned” going forward.
- The primacy of U.S. sanctions hinges on the strength and prevalence of the USD in the global market. As new payment channels emerge, the United States will need to proactively manage the regulatory structure to ensure the effectiveness of sanctions for virtual currency. As the Van Loon decision states: “[P]erhaps Congress will update IEEPA, enacted during the Carter administration, to target modern technologies like crypto-mixing software.”[9] Threat finance tools, and their legal foundations, must continue to evolve and change as the methods used by threat actors continue to evolve and change.
How K2 Integrity Can Help
K2 Integrity can support virtual assets service providers, banks with customers in the cryptocurrency space, or other firms looking to build or strengthen their sanctions compliance programs through the following services:
- Build and augment sanctions compliance programs in accordance with OFAC requirements
- Support list management and alert adjudication procedures
- Support blockchain analytics vendor advisory and implementation—including rule selection, risk appetite evaluation, and associated process design
- Design and deliver bespoke training on the unique challenges associated with virtual currency operations and sanctions compliance
- Provide strategic advisory on OFAC/sanctions compliance matters to firms navigating complex sanctions inquiries.
[1] Van Loon v. DEPT. OF THE TREASURY, 122 F. 4th 549 – Court of Appeals, 5th Circuit 2024. Case: 23-50669. 26 November 2024. https://law.justia.com/cases/federal/appellate-courts/ca5/23-50669/23-50669-2024-11-26.html.
[2] The Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking on 19 October 2023 that identified Convertible Virtual Currency Mixing as a class of transactions of primary money laundering concern. See “FinCEN Proposes New Regulation to Enhance Transparency in Convertible Virtual Currency Mixing and Combat Terrorist Financing,”19 October 2023. https://www.fincen.gov/news/news-releases/fincen-proposes-new-regulation-enhance-transparency-convertible-virtual-currency.
[3] See U.S. Department of the Treasury, “U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash,” 8 August 2022. https://home.treasury.gov/news/press-releases/jy0916.
[4] See U.S. Department of the Treasury, “Treasury Designates DPRK Weapons Representatives: Tornado Cash Redesignated with Additional DPRK Authorities, New OFAC Guidance,” 8 November 2022. https://home.treasury.gov/news/press-releases/jy1087.
[5] Van Loon v. DEPT. OF THE TREASURY.
[6] 144 S. Ct. 2244 (2024).
[7] 467 U.S. 837 (1984).
[8] See U.S. Department of the Treasury. “Tornado Cash Delisting.” 21 March 2025. https://home.treasury.gov/news/press-releases/sb0057.
[9] Van Loon v. DEPT. OF THE TREASURY.