Texas District Court reverses Tornado Cash sanctions

A United States court has reversed the sanctions against Tornado Cash protocol in a significant win for privacy-preserving technologies that could signal more innovation-friendly crypto regulation in the United States.

The Treasury’s Office of Foreign Assets Control (OFAC) sanctioned cryptocurrency mixing protocol Tornado Cash in August 2022 for allegedly helping the North Korean Lazarus Group with laundering over $455 million worth of stolen digital assets.

The Treasury’s sanctions led to the arrest of Tornado Cash developer Alexey Pertsev, who was found guilty of money laundering by Dutch judges at the s-Hertogenbosch Court of Appeal on May 14. The developer was sentenced to five years and four months in prison for allegedly laundering $1.2 billion worth of illicit assets on the platform.

In a significant legal victory for the case, the US District Court for the Western District of Texas has reversed the OFAC’s sanctions against the crypto mixing protocol, according to a court filing issued on Jan. 21.

The filing wrote:

“It is ordered and adjudged that the judgment of the district court is reversed, and the cause is remanded to the district court for further proceedings in accordance with the opinion of this court.”

However, Pertsev remains under arrest for money laundering-related charges despite operating a non-custodial crypto mixer, which never holds or controls the user funds.

During his March trial, Pertsev argued that he could not be held liable for the actions of those who used the Tornado Cash protocol for nefarious or illegal purposes.

The court rejected this argument, saying that if Pertsev and the other co-founders of Tornado Cash had truly wanted to prevent criminals from abusing the protocol, they would have taken further measures to ensure security.

Related: Trump family memecoins may trigger increased SEC scrutiny on crypto