On August 17, 2023, the US District Court for the Western District of Texas, Austin Division, in Van Loon, et al. v. Department of the Treasury, et al., upheld the designation virtual currency (VC) mixer Tornado Cash as a blocked foreign person by the US Department of the Treasury's Office of Foreign Assets Control (OFAC).

On August 8, 2022, OFAC announced economic sanctions against Tornado Cash, which OFAC added to its Specially Designated Nationals And Blocked Persons List (SDN List), prohibiting US market participants from using Tornado Cash. According to OFAC, Tornado Cash has been used to launder more than $7 billion since its creation in 2019 (see Legal Updates, Updated: OFAC Issues Sanctions Against Virtual Currency Mixer Tornado Cash and OFAC Issues FAQs Clarifying Sanctions Against Virtual Currency Mixer Tornado Cash). US Secretary of State Anthony Blinken noted that this amount included $600 million laundered for Lazarus Group and APT38, referred to by OFAC as hacking groups sponsored by the Democratic People's Republic of Korea (DPRK). The sanctions were imposed pursuant to Executive Order 13694, as amended (EO 13694).

Tornado Cash operates on the Ethereum blockchain and facilitates transactions without determining the origin of the transaction or clarity around the destination or counterparties to the transaction. VC mixers like Tornado Cash work under the pretext of providing increased privacy to transaction participants. They mix various transactions before transmitting them on to individual recipients. OFAC asserted that Tornado Cash assisted in conducting illicit transactions that posed a threat to US national security interests by aiding the conduct of financial activity by DPRK.

On September 8, 2022, Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch (collectively, plaintiffs), users of Tornado Cash, filed a complaint accusing OFAC and the Department of the Treasury (Treasury) of violating plaintiffs' constitutional rights to free speech and overstepping statutory authority in sanctioning Tornado Cash, described in the complaint as open-source software code on the Ethereum blockchain, instead of a person or an entity. Plaintiffs' complaint asserted that, while OFAC has certain authority to impose economic sanctions, its jurisdiction does not extend to software code and smart contracts, as used by Tornado Cash.

The parties filed cross motions for summary judgment that hinged on the appropriate characterization of Tornado Cash. OFAC characterized Tornado Cash as an organization with a property interest in the smart contracts that operate the mixer. Plaintiffs characterized Tornado Cash as a decentralized, open-source software project composed of a subset of smart contracts on the Ethereum blockchain. Plaintiffs asserted OFAC's designation of Tornado Cash on its SDN List exceeded its statutory authority over foreign nationals' interests in property and violated plaintiffs' constitutional right to free speech because certain plaintiffs asserted that they would use Tornado Cash to make important donations to political and social causes absent the designation (see Practice Note, OFAC Economic Sanctions: Cryptocurrency and Blockchain: US Sanctions: Overview).

District Judge Robert Pittman granted Treasury's motion for summary judgment, denying plaintiffs' summary judgment motion and finding that:

Judge Pittman found plaintiffs' evidence did not support their free speech argument and they failed to explain how the OFAC designation of Tornado Cash prevented plaintiffs from using other services to complete their transactions.

On August 23, 2023, DOJ unsealed an indictment against Tornado Cash founders Roman Storm and Roman Semenov (together, defendants). Defendants are charged with:

The charges arise from their creation, operation, and promotion of Tornado Cash and its use to complete more than $1 billion in money laundering transactions, including for the sanctioned DPRK organization Lazarus Group.