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After the U.S. After the U.S. Treasury takes Tornado Cash off the sanctions list, a dismissal request is filed in the ongoing legal tussle concerning the crypto mixer. The Treasury Department contends that Tornado Cash’s delisting on March 21 renders the lawsuit over the sanctions moot. However, Paul Grewal, the chief legal officer of Coinbase, vehemently disagrees, cautioning that the absence of a definitive decision could lead to future regulatory overreach.
Tornado Cash was sanctioned by the OFAC in August, as it was reportedly used to launder money by the North Korea-linked Lazarus Group through the protocol. This triggered legal action by several Tornado Cash users, including Coinbase, Base, and Inbase, who argued that the sanctions were unlawful.
A court ruled in favor of Tornado Cash this year in a major legal victory, thus requiring the U.S. Treasury to delist the protocol and related smart contract from sanctions. The government argues that the withdrawal of the penalties negates the need for a court order.
Grewal, however, claims that the move is a deliberate attempt by the Treasury to escape a court ruling that might restrict its current activities. He argues that without any ruling, there is nothing stopping the government from imposing sanctions whimsically at any time.
Grewal claims that Tornado Cash’s removal from the sanctions list has rendered the case moot. But the legislation does not operate in this way. A presented situation can only be declared moot if there is assurance it won’t come back.
He pointed to a recent Supreme Court case where a legal challenge remained valid despite the government’s reversal of its initial position. In such a situation, the court concluded that there was a need for a final determination, as removing a restriction did not entirely rule out the possibility of its return.
Grewal says the Treasury withdrew Tornado Cash without legal protection, putting the crypto space at risk of surprise legislative reversals. He emphasized that it is essential to obtain a court ruling to ensure the government does not have the power to exclude distributed protocols again.
As the battle in court plays on, the crypto community is closely watchful, with the case likely leading to a precedent in how authorities treat blockchain-based entities ahead. The Tornado founders still maintain legal hotlines; one co-founder is on trial, and another is still on the FBI’s most wanted list.
There is a lot of tension and regulatory uncertainty, so the discussion about Tornado Cash could help shape American crypto governance in the future.
