Tornado Cash Sanctions Lifted: A New Chapter in Cryptocurrency Regulation
In a significant development, Tornado Cash, a cryptocurrency mixing service previously accused of being involved in laundering funds stolen by North Korean hackers, has been removed from the U.S. government’s sanctions list. This major decision comes after a ruling by an appellate court in November, which determined that the U.S. Treasury Department exceeded its legal authority in sanctioning the platform.
The Removal of Sanctions on Tornado Cash
Since 2022, Tornado Cash had been listed on the Specially Designated National and Blocked Persons (SDN) list, facing allegations of laundering over $455 million in cryptocurrency pilfered by state-sponsored hackers linked to North Korea. The sanctions were part of a broader strategy to combat state-backed hacking and cybercrime, especially focusing on threats from the Democratic People’s Republic of Korea (DPRK). However, the federal appeals court found that the Treasury’s sanctions overstepped legal limits.
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The ruling clarified that the smart contracts central to Tornado Cash, which are immutable lines of code on the blockchain, do not constitute ‘property’ under the International Emergency Economic Powers Act (IEEPA), a law typically invoked to freeze assets for national security purposes. Following this verdict, the U.S. Treasury announced it would lift the sanctions on Tornado Cash. In its statement, the department noted the court’s findings and stressed the need to reassess the legal and policy challenges that financial sanctions pose in the digital era.
Acknowledging the Court’s Decision
Treasury Secretary Scott Bessent highlighted the critical importance of safeguarding the digital asset industry from misuse while also acknowledging the innovative potential of these technologies. Bessent remarked, “We remain deeply concerned about the substantial state-sponsored hacking and money laundering efforts aimed at acquiring and deploying digital assets for the DPRK and the Kim regime.”
A Landmark Moment for Cryptocurrency
The decision to lift the sanctions has sparked mixed reactions across the cryptocurrency community. Coinbase, a leading cryptocurrency exchange that financially supported the legal challenge, hailed the ruling as a “historic win for crypto.” A representative from Coinbase argued that the intention behind financial regulations was not to stifle open-source technology due to the misconduct of a few bad actors.
Despite the sanctions being lifted, Tornado Cash’s operations have persisted under close scrutiny. Ongoing research suggests that North Korean hackers continue to exploit the platform to launder significant amounts of stolen cryptocurrency.
Continuing Challenges in Cryptocurrency Regulation
The Treasury previously claimed that Tornado Cash had facilitated the laundering of more than $7 billion since its inception in 2019, underscoring the persistent challenges in regulating decentralized financial systems. Legal proceedings are still active against Tornado Cash’s co-founders. Roman Storm was apprehended in Washington state in 2023, whereas his co-founder, Roman Semenov, remains at large and is still on the U.S. sanctions list.
In addition, a Dutch court recently sentenced a Tornado Cash developer, Alexey Pertsev, to over five years in prison for his involvement in money laundering activities.
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