The U.S. Department of the Treasury is attempting to overturn a court ruling that lifted sanctions on the crypto mixer Tornado Cash. Paul Grewal, Chief Legal Officer of Coinbase (NASDAQ: COIN), revealed that on March 21, Treasury officials filed a motion to challenge the ruling, which had declared that the sanctions exceeded legal authority by targeting immutable smart contracts.

Court Battle Over Tornado Cash Sanctions

In January 2025, the U.S. District Court for the Western District of Texas ruled to lift sanctions on Tornado Cash, stating that immutable smart contracts do not qualify as property belonging to a foreign entity and thus cannot be subject to economic restrictions.

Following the ruling, on March 21, the U.S. Treasury removed Tornado Cash’s website and ETH address from its sanctions list. However, Grewal argues that the Treasury’s attempt to reverse this decision is legally flawed.

“After reluctantly removing Tornado Cash from the sanctions list, they now claim they question the necessity of the ruling. But that’s not the law, and they know it. They removed the addresses, but provided no guarantee they won’t re-list them. That’s not enough, and the court will see that.” – Paul Grewal

Legal Battles and Developer Prosecution

The fight against the Tornado Cash sanctions dates back to September 2022, when six users, led by Ethereum developer Preston Van Loon and backed by Coinbase, sued the Treasury, arguing that the sanctions were illegal. Coin Center, a crypto advocacy group, filed a similar lawsuit in October 2022.

Initially, in August 2023, a Texas federal judge sided with the Treasury, ruling that Tornado Cash could be sanctioned under the Office of Foreign Assets Control (OFAC) regulations. However, upon appeal, a three-judge panel overturned the sanctions, declaring them unlawful.

Treasury’s Last Attempt to Reinstate Sanctions

The Treasury had 60 days to challenge the decision, which it has now done. However, the court had already ruled in favor of Tornado Cash, forcing the agency to lift sanctions by March 2025.

Developers Still Face Legal Challenges

Despite the lifted sanctions, Tornado Cash developers remain in legal trouble: 🔹 Roman Storm & Roman Semenov were charged in August 2023 for allegedly facilitating over $1 billion in money laundering.
🔹 Semenov remains at large and is on the FBI’s Most Wanted list.
🔹 Storm is out on a $2M bail and is set to appear in court in April 2025.
🔹 Alexey Pertsev, another Tornado Cash developer, was released from jail after a Dutch court suspended his pre-trial detention as he prepares to appeal.

What’s Next?

The U.S. government’s crypto policy remains uncertain, with regulators continuously challenging decentralization. Will Tornado Cash remain free from sanctions, or will the Treasury succeed in reversing the court’s decision?