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) argued that a final ruling is needed 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. It also delisted nearly 100 Smart Contract addresses affiliated with the Ethereum-based crypto mixer.
The Friday delisting followed a November court ruling that determined the US Treasury had exceeded its authority by sanctioning the platform for allegedly “facilitating” money laundering.
The same day, the Treasury Department argued in a court filing that a final court judgment in the Tornado Cash lawsuit is required because the crypto mixer was removed from the SDN list.
Coinbase’s CLO, Paul Grewal, 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 cited a case Supreme Court ruling from last year, FBI v. Fikre (2024), that determined the FBI didn’t moot the case despite removing the plaintiff from the No Fly List because the ban could be reinstated again in the future.
Based on this, the CLO considers a final court ruling on the Tornado Cash lawsuit necessary. He affirmed that the US Treasury has not assured that it won’t relist the crypto mixer in the future.
“That’s not good enough, and will make this clear to the district court,” Grewal concluded. Notably, the Treasury Department stated that it remained “deeply concerned about the significant state-sponsored hacking and money laundering campaign” of the Democratic People’s Republic of Korea (DPRK), adding that it “will continue to monitor closely any transactions that may benefit malicious cyber actors or the DPRK.”
The Fight For Crypto Privacy
In August 2022, OFAC sanctioned Tornado Cash for “failing to impose effective controls” to prevent malicious actors from laundering funds through the crypto mixer. The US Treasury alleged that the decentralized protocol had been used to launder over $7 billion worth of crypto since 2019, including $455 million linked to the North Korea-linked hacking group Lazarus.
As Bitcoinist reported, the US District Court for the Western District of Texas reversed the OFAC sanctions against Tornado Cash in January. However, Peter Van Valkenburgh, attorney and Executive Director at CoinCenter, pointed out that the court ruling wasn’t “the end of the story.”
As he explained in January, the “District Court will still need to decide whether the remedy is nationwide vacatur (anyone in US can use immutable contracts) or more limited relief (plaintiffs can use contracts and other parties may need to bring their own suits). Nationwide vacatur is what we should be rooting for.”
On Sunday, Grewal also highlighted that “Money laundering hurts people. There. So does violating the law set by Congress. And so does impugning the integrity of large numbers of software developers with broad slanders and no individualized evidence that they did anything illegal.”
It’s worth noting that despite Tornado Cash’s delist from OFAC’s sanctions list, one of its founders, Roman Storm, and its developer, Alexey Pertsev, continue their legal battle against Money Laundering charges.
Pertsev was detained in the Netherlands in August 2022 and convicted in May 2024. He is working on his upcoming appeal after receiving a supervised release from prison. Meanwhile, Storm, also detained in 2022, awaits his April 14 trial.
As Paradigm’s co-founder, Matt Huang, previously pointed out, “The prosecution’s case threatens to hold software developers criminally liable for the bad acts of third parties, which would have a chilling effect on crypto and beyond.”
