Will the Treasury Reimpose Sanctions Against Tornado Cash?

The US Treasury recently lifted its sanctions on Tornado Cash, the controversial cryptocurrency mixer blocked over allegations of facilitating North Korean money laundering.

While this reversal marked a significant development, Coinbase’s Chief Legal Officer Paul Grewal warns that the move does not guarantee long-term freedom for Tornado Cash. Based on his opinion as a legal expert, the US Treasury left the door open for imposing similar restrictions in the future.

Paul Grewal Says Future Sanctions Still a Possibility

The decision to delist Tornado Cash follows months of legal battles and criticism from the crypto community. The Treasury’s original sanctions accused the mixing service of enabling illicit transactions, particularly those tied to North Korea’s hacking groups.

However, legal challenges led to increased scrutiny of the Treasury’s actions, ultimately prompting it to remove the restrictions. Despite this, Grewal argues that the Treasury’s actions attempt to bypass the court’s authority rather than a genuine acknowledgment of wrongdoing.

He believes the reversal does not prevent the government from re-imposing sanctions whenever it sees fit.

“Power does not recede voluntarily. It gasps and it gasps until it no longer can,” Grewal wrote.

Grewal contends that the Treasury’s withdrawal does not legally nullify existing claims. He cites the voluntary cessation doctrine—a defendant’s decision to end a challenged practice does not necessarily moot a case unless it is proven that the practice will not be reinstated.

The Coinbase exchange executive referenced past legal cases, including Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc. In this case, the Supreme Court ruled that a voluntary withdrawal does not eliminate the possibility of future enforcement.

Grewal also cited FBI v. Fikre, where the court held that the FBI’s removal of a plaintiff from the No Fly List did not moot a case. As it happened, there was no assurance the plaintiff would not be relisted.

These legal precedents demonstrate why the Treasury’s move to lift Tornado Cash sanctions does not guarantee lasting protection.

“Here, Treasury has likewise removed the Tornado Cash entities from the SDN, but has provided no assurance that it will not re-list Tornado Cash again,” Grewal argued.

Coinbase CLO Calls for a Final Court Ruling

Based on this, Grewal is urging the district court to take decisive action to prevent potential Treasury overreach. He insists that the court must grant the plaintiffs’ motion for partial summary judgment, which means formally invalidating the Treasury’s designation of Tornado Cash as a sanctioned entity.

“The US Treasury’s response to the unambiguous mandate of the Fifth Circuit on Tornado Cash has been a study in chaos. It is time for the district court to do what was ordered months ago. Plaintiffs’ motion for partial summary judgment on Count 1 must be granted, and TC’s designation must be held unlawful and set aside,” Grewal articulated.

The removal of sanctions is a positive step for Tornado Cash users and the broader crypto community. However, the risk of renewed regulatory action looms large. The legal battle may not be over yet, and the case outcome could set a significant precedent for decentralized finance (DeFi) platforms and privacy-focused technologies.

Grewal and other industry advocates continue to push for a clear judicial ruling. The core objective is to prevent the Treasury from arbitrarily sanctioning Tornado Cash again. Until such a ruling is secured, Tornado Cash remains uncertain legal territory.

“Yes we see this often with the 2a [Second Amendment litigation], they either drop the case or try to settle it so they don’t get a precedent they don’t want set,” Badbrothers, a popular account on X, added.

Badbrothers on X suggests a pattern where government agencies strategically avoid judicial rulings that could limit their authority.