US Scraps Sanctions on Tornado Cash, Crypto 'Mixer' Accused of Laundering North Korea Money

The US Treasury has lifted economic sanctions against Tornado Cash, a cryptocurrency "mixer" that obscures the origins and recipients of transactions. The move comes after a federal appeals court found that the Office of Foreign Assets Control (OFAC) had overstepped its authority in blacklisting the firm in 2022.

The Treasury Department had initially accused Tornado Cash of helping launder more than $7 billion for North Korean and other cyber hackers, including a group known as Lazarus. In 2022, OFAC listed Tornado Cash on its list of "specially designated nationals," effectively freezing the company's assets and restricting its ability to conduct business with US entities.

However, six users of Tornado Cash had filed a lawsuit challenging the sanctions, arguing that they were unconstitutional and overly broad. The case was backed by the Coinbase crypto exchange, which is one of the largest cryptocurrency exchanges in the world.

In November, a federal appeals court ruled that OFAC had exceeded its authority in listing Tornado Cash, but the sanctions remained in place until now. In a statement, the Treasury Department said it had decided to repeal the sanctions after reviewing legal and policy issues raised by the use of sanctions within an "evolving technology and legal environment."

Despite repealing the sanctions, the Treasury Department remains concerned about North Korea's state-sponsored hacking and money laundering campaign. The department stated that securing the digital asset industry from abuse by North Korean and other illicit actors is essential to establishing US leadership in this field.

"Securing the digital asset industry from abuse by North Korea and other illicit actors is essential to establishing U.S. leadership and ensuring that the American people can benefit from financial innovation and inclusion," said Treasury Secretary Scott Bessent in a statement.

The Background: Tornado Cash and Its Controversies

Tornado Cash is a cryptocurrency "mixer" that allows users to obscure the origins and recipients of transactions. This makes it difficult for law enforcement agencies to track the flow of illicit funds, which has raised concerns about its potential use in money laundering.

In 2023, two of Tornado Cash's co-founders were charged with facilitating more than $1 billion in money laundering, including for the Lazarus Group. One of the founders, Roman Storm, is currently awaiting trial and has denied any involvement in criminal activity.

The Fallout: Implications for Cryptocurrency Regulation

President Donald Trump's executive order to establish a strategic reserve of cryptocurrencies and his summit with industry leaders at the White House have signaled a shift in US cryptocurrency policies. The repealing of sanctions on Tornado Cash suggests that the administration is looking to balance regulation with innovation and growth in the digital asset space.

"This decision reflects our commitment to promoting financial innovation and inclusion, while also ensuring that the digital asset industry is not used for illicit activities," said a Treasury Department spokesperson. However, experts warn that this move could embolden other crypto "mixers" and money launderers to operate with impunity.