Tornado Cash is a decentralized, non-custodial privacy protocol on Ethereum that uses zero-knowledge proofs to break the on-chain link between a sender and recipient. On August 8, 2022, the US Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash — adding the smart contract addresses themselves to the SDN (Specially Designated Nationals) list, making it illegal for US persons to interact with the protocol. The sanction was the first-ever targeting of immutable, autonomous open-source code rather than a company or individual, sparking a constitutional crisis and a landmark federal court case that partially overturned the sanctions in 2024.
How Tornado Cash Works
Tornado Cash uses a smart contract pool system combined with zk-SNARKs:
- Deposit: A user sends a fixed denomination of ETH (or ERC-20 tokens) to a Tornado Cash pool (0.1 ETH, 1 ETH, 10 ETH, 100 ETH denominationed pools) and receives a cryptographic note (a secret key)
- Wait: The user waits for other deposits to mix — the more deposits, the larger the anonymity set
- Withdraw: Using the note and a zk-SNARK proof, the user proves they made a valid deposit WITHOUT revealing which deposit — and withdraws to a fresh address
The smart contracts are immutable — they cannot be updated, shut down, or censored by developers.
Usage
Legitimate uses:
- Privacy from surveillance
- Protecting business transaction details from competitors
- Separating personal and professional on-chain activity
Illicit uses:
- North Korea’s Lazarus Group used Tornado Cash extensively to launder Harmony Horizon bridge funds ($100M), Ronin bridge funds ($625M), and others
- OFAC estimated ~30% of Tornado Cash volume was from sanctioned entities
The Sanctions (August 2022)
OFAC added 44 Ethereum smart contract addresses — Tornado Cash’s core contracts — to the SDN list alongside developer Roman Storm and others. GitHub immediately removed the Tornado Cash repository. Circle froze USDC held in Tornado Cash-associated addresses. Aave, Uniswap, and most DeFi frontends geo-blocked or banned Tornado Cash interactions.
Developer arrests:
- Roman Storm (US) arrested August 2023, charged with money laundering conspiracy
- Roman Semenov (Russia) charged but not arrested
- Alexey Pertsev (Netherlands) arrested May 2022, convicted in Netherlands court (May 2024) to 5 years 4 months
The Legal Battle: Van Loon v. Treasury
Six Tornado Cash users (including Coinbase-funded plaintiffs) sued Treasury, arguing:
- Immutable smart contracts are not “property” that can be sanctioned — they have no owner
- The sanctions violate the First Amendment (code as protected speech)
November 2024: The Fifth Circuit Court of Appeals ruled in favor of the plaintiffs on the immutable contracts — holding that smart contracts that cannot be modified by any party are not “property” under IEEPA and therefore cannot be sanctioned. The ruling vacated the portions of the OFAC sanctions covering the immutable contracts.
The ruling did NOT cover the mutable parts of the Tornado Cash system (the governance contracts) or protect developers from criminal liability.
Industry Significance
- First time a court directly addressed whether open-source smart contracts can be sanctioned
- Confirmed that development of privacy tools is not inherently criminal
- But developers can still face conspiracy charges if they knowingly facilitated money laundering
- The ruling is cited as foundational for privacy-preserving DeFi protocols going forward
Related Terms
Sources
- OFAC (2022). “U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash.” Treasury Press Release, August 8, 2022.
- Coin Center (2022). “OFAC’s Tornado Cash Sanctions Are Unlawful.” Coin Center Policy Analysis.
- Van Loon et al. v. Department of Treasury (2024). Fifth Circuit Court of Appeals, No. 23-50669.
- Pertsev Verdict (2024). MIVD / Dutch Court of Eastern Brabant, May 14, 2024.
- Nakasone, J. & Malone, T. (2023). “Cryptocurrency Mixers and AML/CFT Compliance.” FinCEN Guidance FIN-2023-NTC2.