Urgent Question: US Treasury’s Bold Move to Sidestep Final Tornado Cash Judgment

Is the legal battle over Tornado Cash truly finished? The US Treasury Department is making a bold move, arguing that there’s no need for a final court judgment in the ongoing lawsuit concerning the now de-sanctioned crypto mixer. After removing Tornado Cash from its sanctions list on March 21st, the Treasury asserts the entire legal challenge has become ‘moot.’ But is it really that simple? Let’s dive into this critical development and explore why legal experts like Coinbase’s chief legal officer, Paul Grewal, are pushing back, insisting the fight for a final court judgment is far from over.

US Treasury Declares Tornado Cash Case ‘Moot’ – But Why?

In August 2022, the Treasury’s Office of Foreign Assets Control (OFAC) sent shockwaves through the crypto world by sanctioning Tornado Cash. Their reasoning? Allegations that the protocol facilitated money laundering, particularly for the North Korean Lazarus Group. This move triggered a lawsuit from Tornado Cash users, challenging the legality of the sanctions. Fast forward to March 21st, and the Treasury reversed course, delisting Tornado Cash and affiliated smart contract addresses. Now, they argue this reversal renders the entire legal challenge pointless, or ‘moot’ in legal terms. Essentially, the Treasury believes that since the sanction is gone, the lawsuit should be dropped. According to a statement from the Treasury, “Because this court, like all federal courts, has a continuing obligation to satisfy itself that it possesses Article III jurisdiction over the case, briefing on mootness is warranted.” They are essentially asking the court to consider the case closed due to their actions.

Why is a Final Court Judgment Still a Vital Legal Challenge?

Paul Grewal, Coinbase’s top legal mind, strongly disagrees with the Treasury’s attempt to declare the case moot. He argues this isn’t how the law works, pointing to the ‘voluntary cessation exception.’ This legal principle states that simply stopping a challenged practice doesn’t automatically make a case moot. For a case to be truly moot under this exception, the defendant – in this case, the US Treasury – must prove that the challenged practice (sanctioning Tornado Cash) cannot “reasonably be expected to recur.”

Grewal highlights a recent 2024 Supreme Court ruling involving Yonas Fikre, a US citizen wrongly placed on the No Fly List. Even though Fikre was removed from the list, the Supreme Court ruled the case was not moot because the ban could be reinstated. This precedent is critical to understanding the current Tornado Cash situation.

Grewal emphasizes, “Here, Treasury has likewise removed the Tornado Cash entities from the SDN, but has provided no assurance that it will not re-list Tornado Cash again. That’s not good enough.” He is making it clear that without a guarantee against future re-sanctioning, the legal challenge remains very much alive and a final court judgment is essential to prevent potential future actions.

The Tumultuous History of Crypto Sanctions and Tornado Cash

The crypto sanctions saga surrounding Tornado Cash has been a rollercoaster. Let’s recap the key events:

• August 2022: US Treasury OFAC sanctions Tornado Cash, citing money laundering concerns.
• September/October 2022: Tornado Cash users, backed by Coin Center and Coinbase, launch lawsuits challenging the sanctions.
• August 2023: A Texas federal court judge initially sides with the US Treasury, upholding the sanctions.
• November 2023: An appeals court panel rules against the Treasury, deeming sanctions on Tornado Cash’s smart contracts unlawful.
• January 2024: The US court upholds the ruling against the Treasury, forcing the removal of sanctions.
• March 2024: US Treasury officially delists Tornado Cash.

Despite the delisting, the legal and regulatory shadow over crypto mixers remains. The initial sanction and the subsequent legal battles highlight the ongoing tension between government oversight and the principles of decentralization and privacy within the cryptocurrency space. The demand for a final court judgment in this case is not just about Tornado Cash; it’s about establishing clear legal precedents for future crypto sanctions and regulations.

Tornado Cash Founders Still Face a Legal Firestorm

While the protocol itself is no longer sanctioned, the legal troubles for Tornado Cash are far from over. Co-founders Roman Storm and Roman Semenov were charged in August 2023 with aiding money laundering through the mixer. Semenov remains at large on the FBI’s most wanted list. Storm, currently free on a $2 million bond, is expected to stand trial in April. Adding another layer, developer Alexey Pertsev, arrested in the Netherlands, was recently released from prison pending appeal of his money laundering conviction. These ongoing legal battles against the founders underscore the serious implications for individuals involved in decentralized protocols, even if the protocols themselves are later de-sanctioned. The fight for Tornado Cash, in its various forms, is a long and complex one.

The Unresolved Question of Crypto Regulation

The US Treasury’s attempt to dismiss the Tornado Cash case as moot raises significant questions about the future of crypto regulation and the government’s approach to decentralized technologies. While the delisting is a positive step for Tornado Cash users, the lack of a final court judgment leaves a lingering uncertainty. Will the Treasury attempt to re-sanction Tornado Cash or similar protocols in the future? Will clear legal boundaries be established for crypto sanctions? The legal community, and the crypto industry at large, are watching closely. The push for a final court judgment in the Tornado Cash case is a fight for clarity, for precedent, and for ensuring that regulatory actions are not just reversed on a whim, but are subject to thorough legal scrutiny. The urgent need for defined rules in the crypto space remains more apparent than ever.