Treasury Department Officially Delists Sanctions on Tornado Cash

On March 21, 2025, the Treasury Department’s Office of Foreign Assets Control (OFAC) officially announced the delisting of Tornado Cash from its Specially Designated Nationals (SDN) and Blocked Persons List following years of litigation on the issue. The Department has announced the delisting of the Tornado Cash front-end website, as well as smart contracts making up the protocol but did not delist developer Roman Semenov. 

The DeFi Education Fund (DEF) commends the Treasury Department and Secretary Scott Bessent for this decision, which minds the technological nuances of decentralized software protocols and front-end websites. This decision reaffirms something that DEF has been advocating for: immutable decentralized software cannot and should not be designated under sanctions authorities. 

In 2023, DEF submitted an amicus brief in Van Loon v. Department of Treasury arguing that OFAC’s sanctions were improper and exceeded the agency’s legal authority under the International Emergency Economic Powers Act (IEEPA). DEF highlighted that technologies are a neutral tool and that Tornado Cash has legitimate uses for protecting individual financial privacy, urging the court to overturn the sanctions to protect innovation and privacy rights. Meaningful policy and regulatory change is a quiet team effort—with industry participants, Hill staff, academics, and businesses working together to promote sound decision making. At DEF, we are deeply grateful to all those who work tirelessly to ensure DeFi developers can safely and successfully innovate.

While the delisting is a positive development for the DeFi industry, more hard work remains to be done to protect software developers’ rights to build. 

For more background on the decision and its potential implications, read below. 

Background on the Tornado Cash Sanctions

In August 2022, OFAC sanctioned crypto mixer Tornado Cash for “its role in laundering virtual currency for malicious cyber actors.” By including Tornado Cash on its SDN list, OFAC prohibited any dealings with Tornado Cash “property,” which, according to OFAC, included decentralized software like smart contracts and other open-source code.

Then, in August 2023, OFAC sanctioned Tornado Cash developer Roman Semenov “for his role in providing material support to Tornado Cash and to the Lazarus Group.” In its press release, OFAC recognized that Semonov had identified the North Korean wallet address and had taken the proper precautions to screen for it on the Tornado Cash front-end.

Fifth Circuit Court of Appeals Ruling in Van Loon

Following the designation, in September 2022, Joseph Van Loon, Tyler Almeida, Preston Van Loon, and Nate Welch sued the Treasury for adding Tornado Cash to the SDN list. 

The plaintiffs in Van Loon challenged OFAC’s designation of the Tornado Cash smart contracts under the Administrative Procedure Act (APA), claiming that, among other arguments, Tornado Cash is not an “entity” that can be properly designated under IEEPA and that the smart contracts behind the Tornado Cash interface do not qualify as “property” that can be sanctioned under IEEPA. After a loss in the District Court, the plaintiffs appealed.

In November 2024, the United States Court of Appeals for the Fifth Circuit delivered its opinion in Van Loon v. Department of Treasury, finding that the Treasury Department unlawfully designated Tornado Cash smart contracts under its existing sanctions authorities. 

The Fifth Circuit concluded that immutable smart contracts are not “property” in the ordinary meaning of the word or in the statutory meaning of the word because they are unownable. The Court also found that Tornado Cash’s immutable smart contracts are not property in the statutory sense because they are not a contract or a service. Smart contracts thus fall “outside the scope of OFAC's designation authority.” Therefore, the Fifth Circuit held that “(1) [smart contracts] cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.”

This ruling was a massive win for DeFi developers and users. The Court clearly recognized the unique attributes of decentralized, immutable software protocols. The ruling also reaffirmed the judiciary’s role in limiting agency overreach, including in the context of IEEPA. 

Following the ruling, the plaintiffs filed a motion for entry of judgement, which sought to formally enter to the record a final judgement in the case, ensuring the ruling is enforceable and mandating that Treasury delist the Tornado Cash smart contracts.  

Treasury’s Response to Motion for Entry of Judgement

On March 18, 2025, the Treasury Department responded to the plaintiffs’ motion for entry of judgment in Van Loon, which has been remanded to the district court for final judgment. 

The Treasury Department’s response sought to narrow the judgment to cover only the immutable smart contracts and remand the issue to Treasury for further proceedings or alternatively stay proceedings to provide time to delist Tornado Cash, as in their conception, the court did not reach a definitive conclusion as to whether Tornado Cash is an “entity” or the mutable designated smart contracts constitute “property.” Additionally, Treasury claimed that vacating the entire designation would undermine national security interests. 

Treasury Delists Tornado Cash Smart Contract Sanctions 

Notwithstanding the Treasury’s motion on March 21, 2025, OFAC formally announced the delisting of Tornado Cash from the SDN list. “Based on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash as reflected in Treasury’s Monday filing in Van Loon v. Department of the Treasury.” 

While the Cyber-Related Sanctions on Roman Semenov were removed, the updated listing maintains Semenov as sanctioned under OFAC’s Democratic Peoples Republic of North Korea (DPRK) Sanctions program.

Implications 

The DeFi Education Fund applauds Treasury for adhering to the law in accordance with the Fifth Circuit’s decision. Unfortunately, Treasury has made it clear in its response to the motion for entry of judgement that it intends to proceed with its assertion that Tornado Cash—in whichever way it has chosen to understand it—is a sanctionable “entity.” This was also expressed in Treasury’s decision to keep Semenov on the SDN list for developing the decentralized software protocol.

There is much work to be done. Removing particular smart contracts from the SDN list—after a court order—is a step in the right direction. However, continuing to assert that a decentralized software protocol is an entity and that developers of said protocol are themselves liable for enabling illicit activity for writing its code and making it publicly available is a flawed conclusion. 

Continuing to perceive Tornado Cash as an entity fails to understand the nuances of publicly available software. If the Tornado Cash developers and its DAO—as Treasury and the District Court have perceived to be the entity—disappeared tomorrow, the protocol would continue to be publicly available for anyone to use. In fact, after these sanctions were first introduced and the Department of Justice indicted the Tornado Cash developers, the protocol continued to operate and be used. If it were true that such an entity existed, these actions would have surely prevented its continued operation. Given this reality, it’s important that Treasury recognize that DeFi protocols are merely software tools for anyone to use at their discretion, akin to any other public infrastructure. 

Attempting to define Tornado Cash as an “entity” to be sanctioned under the U.S. framework conflates the software protocol and any independent contributors with an identifiable intermediary. Hence, during Fifth Circuit oral arguments, Judge Edith Jones challenged the assertion that Tornado Cash smart contracts are a sanctionable entity contending that the Treasury’s sanctions seemed to be “a solution in search of an entity.” Judge Jones criticized the government’s seemingly limitless assertion on the definition “entity” jokingly asking if because everyone in the court room has a Rolex watch “are we a Rolex entity?”

Despite Treasury’s assertions, the APA’s mandate is unambiguous: unlawful agency actions must be “set aside.” Treasury’s motion raises serious concerns that rather than fully correcting its unlawful designation of the smart contracts, Treasury seeks to preserve as much of the agency’s original position as possible.

Furthermore, Treasury alluding to its supposed “discretion” in delisting Tornado Cash contends with the Fifth Circuit’s explicit ruling that (1) [smart contracts] cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.” Thus, while we welcome the delisting, we implore Treasury to maintain the policy that decentralized software protocols and their developers should not be assigned sanctions under existing IEEPA authority as an entity or blocked property.

Lastly, developers of neutral software tools are not cybercriminals for its mere development and publication when such tools have perfectly lawful purposes, such as empowering Americans’ right to privacy. As recognized by President Donald Trump in his Executive Order for Strengthening American Leadership in Digital Financial Technology, it is the policy of the Administration to protect and promote “the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks without persecution, including the ability to develop and deploy software.” We would hope that Treasury shares this view and recognizes the reality of software developed and deployed on an open public blockchain.

Excerpt from soon to be released DeFi Education Fund policy paper - 

“Given the infrastructure and governance of DeFi protocols, the central issue when attempting to subject protocols and their developers to existing regulatory regimes is that they are not intermediaries. Users have open, transparent access to systems that allow them to conduct various types of financial activities without requiring specialized intermediaries or institutions. 

Instead, the developers of these protocols are merely providing neutral software tools that are completely open to the public and out of their control upon deployment. How third-parties use these tools is completely out of the reach of the developers.”