The U.S. Treasury Department's recent decision to remove Tornado Cash from its sanctions list was not merely a bureaucratic formality; it stemmed from unique legal challenges and a significant court ruling. In November 2024, a panel of the Fifth Circuit Court of Appeals determined that the Treasury's Office of Foreign Assets Control (OFAC) did not possess the authority to impose sanctions on smart contracts associated with the crypto mixer Tornado Cash. Following this ruling, in March 2025, OFAC officially delisted Tornado Cash, while still keeping developer Roman Semenov on its Specially Designated Nationals list.

This development is particularly important for the cryptocurrency community, which has long debated the extent of government oversight over decentralized applications. The Fifth Circuit's ruling ignited a surge in the price of the TORN token, as many within the industry saw it as a positive sign that the U.S. government might find it increasingly difficult to inhibit lawful uses of crypto mixers.

Understanding the Delisting

The delisting of Tornado Cash included the removal of various smart contract addresses and other integral components of the mixer, which followed closely behind the Fifth Circuit's November ruling. It appears that OFAC acted preemptively to avoid further mandated court actions that could have compelled them to permanently remove Tornado Cash from their sanctions list.

To provide some context, the situation began when a group of developers, supported by the cryptocurrency exchange Coinbase, filed a lawsuit against OFAC after Tornado Cash was initially sanctioned in 2022. The case, known as Van Loon v. Treasury, initially favored the Treasury's stance. However, upon appeal, the Fifth Circuit clarified that smart contracts were not under OFAC's jurisdiction. The appeals court's decision sent the case back to the district court for further deliberation.

Legal Implications

On the very day that OFAC announced the removal of Tornado Cash from its sanctions list, it also filed a notice stating to the court that the legal case concerning the matter was now moot. Peter Van Valkenburgh, the executive director at Coin Center, noted that OFAC was left with limited options after the Fifth Circuit's ruling. He articulated two interpretations of OFAC's decision to delist Tornado Cash: firstly, to preserve some degree of regulatory power for the future or, alternatively, to expedite the resolution of an increasingly convoluted legal issue.

Leah Moushey, an attorney with Miller & Chevalier, indicated that the court might reject OFAC's filing on the grounds that it remains uncertain whether Tornado Cash can be designated again in the future. She referenced a Supreme Court case, FBI v. Fikre, which decided that simply removing an individual from a no-fly list did not guarantee he would not be placed back on the list, implying OFAC might have to demonstrate that Tornado Cash cannot be redesignated.

Future Uncertainties

Another significant question centers around whether the delisting of Tornado Cash will impact the ongoing criminal prosecution of developer Roman Storm. Following the Fifth Circuit's ruling, Storm's legal representatives requested the presiding judge to dismiss the indictment. However, the judge ruled that the case would proceed, maintaining that the scope of Storm's actions extended beyond mere interactions with the smart contract itself. The Fifth Circuit ruling did not address Tornado Cash as a legal entity.

Despite the delisting, OFAC chose to retain sanctions against Semenov, indicating that the Department of Justice will continue to argue that Storm conspired to violate these sanctions. Currently, the trial for the Storm case is scheduled for July.

Implications for the Broader Crypto Landscape

This situation raises broader questions about regulatory practices and the future of decentralized finance (DeFi). As governments around the world grapple with the implications of cryptocurrencies and blockchain technology, the Tornado Cash case serves as a significant reference point for the balance between innovation and regulation.

As crypto regulations evolve, stakeholders across the industry will be watching closely to see how this case impacts future legal frameworks.