The US Department of the Treasury is facing backlash over its claim that a final court ruling on the Tornado Cash lawsuit is moot after delisting the crypto-mixing protocol from its sanctions list. Coinbase’s Chief Legal Officer (CLO) has argued that a definitive ruling is essential to prevent further attacks on the protocol.
US Treasury Claims Tornado Cash Case Is Moot
The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) removed Tornado Cash from its Specially Designated Nationals (SDN) list on March 21. Additionally, it delisted nearly 100 Smart Contract addresses affiliated with the Ethereum-based crypto mixer.
The delisting, which took place on a Friday, followed a November court ruling asserting that the US Treasury had exceeded its authority by sanctioning the platform for allegedly “facilitating” money laundering.
On the same day, the Treasury Department contended in a court filing that a final court judgment in the Tornado Cash lawsuit is necessary now that the crypto mixer has been removed from the SDN list.
Paul Grewal, Coinbase’s CLO, criticized the US Treasury’s “late Friday pleading against Tornado Cash,” noting that “After grudgingly delisting TC, they now claim they’ve mooted any need for a final court judgment. But that’s not the law, and they know it.”
Grewal argued that “under the voluntary cessation exception, a defendant’s decision to end a challenged practice moots a case only if the defendant can show that the practice cannot ‘reasonably be expected to recur.’”
He referenced the Supreme Court’s ruling in FBI v. Fikre (2024), which concluded that the FBI did not moot the case despite removing the plaintiff from the No Fly List, emphasizing that the ban could potentially be reinstated.
This precedent reinforces Grewal’s position that a definitive court ruling on the Tornado Cash lawsuit remains necessary, as the US Treasury has not assured that it will not relist the crypto mixer.
“That’s not good enough, and I will make this clear to the district court,” Grewal concluded. Notably, the Treasury Department reiterated its concerns regarding the significant state-sponsored hacking and money laundering campaigns of the Democratic People’s Republic of Korea (DPRK), committing to monitoring transactions that may benefit malicious cyber actors.
The Fight For Crypto Privacy
In August 2022, OFAC sanctioned Tornado Cash for “failing to impose effective controls” to prevent illicit activities through the crypto mixer. The US Treasury alleged that the decentralized protocol had been used to launder over $7 billion worth of cryptocurrency since 2019, including $455 million linked to the North Korean hacking group Lazarus.
As reported by Bitcoinist, the US District Court for the Western District of Texas overturned the OFAC sanctions against Tornado Cash in January. However, Peter Van Valkenburgh, attorney and Executive Director at CoinCenter, cautioned that the court ruling did not signify the end of the legal discourse.
As he explained in January, the “District Court will still need to decide whether the remedy is nationwide vacatur (where anyone in the US can utilize immutable contracts) or more limited relief (allowing plaintiffs to use contracts while other parties may need to initiate separate lawsuits). Nationwide vacatur is what we should be rooting for.”
Furthermore, Grewal emphasized in a recent statement that “Money laundering hurts people. So does violating the law set by Congress. And so does impugning the integrity of numerous software developers with broad slanders and no individualized evidence that they acted illegally.”
It is also important to highlight that despite Tornado Cash’s recent removal from OFAC’s sanctions list, one of its founders, Roman Storm, and developer Alexey Pertsev continue their legal battles against money laundering charges.
Pertsev was detained in the Netherlands in August 2022 and convicted in May 2024. He is preparing for an appeal after receiving supervised release from prison. Meanwhile, Storm, also detained in 2022, awaits his trial on April 14.
As noted by Matt Huang, co-founder of Paradigm, “The prosecution’s case threatens to hold software developers criminally liable for the wrongful actions of third parties, which could have a chilling effect on the crypto industry and beyond.”
