Texas Court Reverses Tornado Cash Sanctions — What Does It Mean for Crypto?

A US District Court in Texas has overturned the sanctions placed on Tornado Cash. Tornado Cash is a protocol that enhances privacy for cryptocurrency transactions. It uses smart contracts to mix users’ funds, making it harder to trace transactions back to individual users. In August 2022, the US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, accusing it of facilitating money laundering activities, particularly by the North Korean hacking group Lazarus, which allegedly laundered $455 million through the platform. Yesterday’s decision could be a sign of more crypto-friendly regulations to come in the United States.

Texas District Court reverses Tornado Cash sanctions. Source: Courtlistener Why Was Tornado Cash Sanctioned?

OFAC alleged that Tornado Cash allowed criminals and hackers to hide illicit funds. The sanctions were part of a broader effort to prevent misuse of cryptocurrency by bad actors. These actions drew criticism from privacy advocates, who argued that the sanctions unfairly targeted a neutral technology rather than the criminals misusing it.

The sanctions led to the arrest of Alexey Pertsev, a developer behind Tornado Cash. In May 2024, a Dutch court sentenced Pertsev to over five years in prison for laundering $1.2 billion worth of illegal funds through the protocol.

What Did the Texas Court Decide?

On January 21, 2025, the US District Court for the Western District of Texas reversed the sanctions. The court said that the judgment by OFAC exceeded its authority. The ruling followed an appeal by six users who argued that OFAC had overstepped its powers by blacklisting Tornado Cash’s software.

The plaintiffs contended that the protocol’s smart contracts are immutable lines of code and cannot be considered “property” of any foreign entity. They also emphasized that users often seek privacy for legitimate reasons, such as safeguarding their financial data.

What Happens Next?

Despite the reversal, Tornado Cash developer Alexey Pertsev remains in custody on money laundering charges. During his trial in March 2024, Pertsev argued that he could not control how others used the protocol. However, the court ruled that Pertsev and the other founders failed to implement adequate measures to prevent criminal misuse.

The recent court ruling against the sanctions has given hope for greater clarity in how privacy-preserving technologies can operate legally

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