Federal Judge Upholds Treasury Department’s Sanctions on Crypto Mixing Service Tornado Cash

In a closely watched case weighing government authority versus crypto industry interests, a federal judge has upheld the Treasury Department’s move to sanction the cryptocurrency mixing service Tornado Cash.

Judge Robert Pitman denied requests for summary judgment from six plaintiffs, including two employees of cryptocurrency exchange Coinbase, who argued Treasury overstepped its bounds in blocking financial transactions related to Tornado Cash. The service is designed to obscure the origin of digital asset transactions, making them difficult to trace.

Last August, the Treasury’s Office of Foreign Assets Control (OFAC) accused Tornado Cash of laundering over $7 billion worth of cryptocurrency since its creation in 2019. OFAC-sanctioned associated crypto wallets and smart contracts connected to the mixing protocol.

Ruling Signals Ongoing Regulatory Scrutiny of Privacy Coins

The Coinbase-funded lawsuit claimed these actions unfairly restricted law-abiding Americans from conducting legitimate transactions through Tornado Cash’s privacy-preserving service. But Judge Pitman ruled that OFAC’s determinations were within its authority.

Government regulators have warned that tools like mixers allow illicit activity to flourish unchecked. Research from Chainalysis linked nearly $2 billion in crypto stolen by North Korean hackers in 2022 to Tornado Cash, which allegedly obscures the path of stolen funds.

Industry advocates argue sanctioning foundational technologies like smart contracts could chill innovation and investment in web3. But the court found OFAC’s designation of smart contracts as sanctionable property was reasonable, not “plainly inconsistent” with the law.

The ruling signals increased scrutiny of privacy coins and decentralized tech that obstruct regulatory oversight. However, solutions that balance anonymity with accountability may still gather steam. With thoughtful governance, crypto can realize its democratic potential while curtailing criminal abuse.

For now, the court’s affirmation of the Treasury’s broad sanction powers serves as a warning to the crypto sector. While the industry seeks mainstream adoption, expectations for transparency and compliance are rising in parallel.