2026-07-31 · Illicit Finance
Treasury sanctioned a piece of software, a federal appeals court held that the software could not be owned and so could not be blocked, and Treasury removed the designation two years and seven months after imposing it. The criminal case against one of the developers outlived all of that, because it never rested on the designation in the first place.
Case file
| Field | Value |
|---|---|
| Matter | The Tornado Cash sanctions arc: OFAC designations, Van Loon v. Department of the Treasury, United States v. Storm |
| First mixer designation | Blender.io, 6 May 2022. The first virtual currency mixer OFAC ever sanctioned |
| Tornado Cash designated | 8 August 2022, published at 87 FR 49652 |
| Withdrawn and reissued | 8 November 2022, published at 87 FR 68581 (removal) and 87 FR 68578 (new designation) |
| Sanctions authority | E.O. 13694 § 1(a)(iii)(B), as amended by E.O. 13757. E.O. 13722 § 2(a)(vii) added on the November designation |
| Civil case | Joseph Van Loon v. Department of the Treasury, W.D. Tex. 1:23-cv-00312 (Austin), Pitman J. Filed 8 September 2022 in Waco as 6:22-cv-00920 before Albright J |
| On appeal | No. 23-50669, U.S. Court of Appeals for the Fifth Circuit. Panel: Jones, Willett and Engelhardt, opinion by Willett |
| Civil holding | 26 November 2024. Immutable smart contracts are not “property” under IEEPA, so they cannot be blocked and OFAC exceeded its statutory authority. Reversed and remanded |
| Delisted | 21 March 2025, published at 90 FR 13823 |
| Judgment on remand | 28 April 2025. Pitman J vacated the earlier ruling in part and granted the plaintiffs partial summary judgment on the APA claim |
| Criminal case | United States v. Roman Storm, S1 23 Cr. 430 (KPF), S.D.N.Y., Judge Katherine Polk Failla. Indictment filed under seal 21 August 2023, unsealed 23 August 2023 |
| Counts | One: conspiracy to commit money laundering. Two: conspiracy to operate an unlicensed money transmitting business. Three: conspiracy to violate IEEPA |
| Verdict | 6 August 2025. Guilty on Count Two. No verdict on Counts One and Three |
| Posture as of 2026-07-31 | Storm’s Rule 29 motion for a judgment of acquittal is pending. Argued 9 April 2026, ruling deferred. Retrial on Counts One and Three set for 26 October 2026, contingent on that ruling. No sentence imposed |
| Amounts at issue | Tornado Cash: more than $7 billion laundered since 2019, per OFAC, including over $455 million from the Lazarus Group. Blender.io: more than $500 million in Bitcoin since 2017, including over $20.5 million of the Axie Infinity heist proceeds |
| Agencies | Treasury OFAC, U.S. Attorney’s Office for the Southern District of New York, FBI |
| Still designated | BLENDER.IO and SINBAD remain on the SDN List. Roman Semenov remains listed. Tornado Cash does not appear |
What the record shows
The first mixer designation, May 2022
On 6 May 2022 OFAC designated Blender.io. Treasury’s release carried the headline “U.S. Treasury Issues First-Ever Sanctions on a Virtual Currency Mixer”, and Under Secretary for Terrorism and Financial Intelligence Brian E. Nelson said in it: “Today, for the first time ever, Treasury is sanctioning a virtual currency mixer.”
The release describes Blender as a mixer operating on the Bitcoin blockchain that obfuscates the origin, destination and counterparties of transactions, and states that Blender “has helped transfer more than $500 million worth of Bitcoin since its creation in 2017”. OFAC tied it to the 23 March 2022 theft from the blockchain project linked to the game Axie Infinity, which Treasury put at “almost $620 million” and called the largest virtual currency heist to date. Blender processed over $20.5 million of those proceeds. OFAC also identified Blender laundering for the Trickbot, Conti, Ryuk, Sodinokibi and Gandcrab ransomware groups. The designation ran under Executive Order 13694, as amended.
The mechanism Treasury describes is a custodial one: Blender “receives a variety of transactions and mixes them together before transmitting them to their ultimate destinations”. Its SDN entry, as it stands on 31 July 2026, identifies three websites (one of them a Tor address), two email addresses and a list of Bitcoin addresses.
Tornado Cash, 8 August 2022
Three months later OFAC designated Tornado Cash. Treasury’s release states that the protocol “has been used to launder more than $7 billion worth of virtual currency since its creation in 2019”, including over $455 million stolen by the Lazarus Group, more than $96 million from the 24 June 2022 Harmony Bridge heist, and at least $7.8 million from the 2 August 2022 Nomad heist.
The Federal Register notice sets out what was actually blocked. OFAC listed the entity as “TORNADO CASH (a.k.a. TORNADO CASH CLASSIC; a.k.a. TORNADO CASH NOVA)”, gave the website tornado.cash, and then enumerated digital currency addresses as alternate identifiers: 38 unique addresses across the ETH and USDC entries. Andrea M. Gacki, then Director of OFAC, signed it on 8 August 2022 under section 1(a)(iii)(B) of E.O. 13694 as amended. [P]
Most of those addresses were deployed smart contracts. The Fifth Circuit’s summary of the same action counts the website, 37 smart contracts and one address used to accept donations, which reconciles with the 38 unique addresses in the notice. The court also records that at least twenty of those contracts had been made permanently unchangeable in a 2020 “trusted setup ceremony” in which more than 1,100 participants removed the developers’ ability to alter, remove or control the code. After the ceremony the pool contracts “became self-executing and could no longer be altered, removed, or controlled”. [P]
The November re-designation
On 8 November 2022 OFAC withdrew the 8 August designation and issued a replacement the same day. Both notices appeared in the Federal Register of 15 November 2022, the removal at 87 FR 68581 and the new listing at 87 FR 68578.
Two things changed. The new listing added a second, independent legal basis: section 2(a)(vii) of E.O. 13722, the North Korea order, alongside the cyber authority, with the entry tagged both [DPRK3] and [CYBER2]. And the address list grew to 88 unique addresses, 52 of which had not appeared in the August listing.
A figure disagreement. The Fifth Circuit’s opinion describes the November action as one that “included 53 Ethereum addresses associated with the Tornado Cash software”. The Federal Register notice for that action lists 88 unique addresses, of which 52 were new. Both are primary documents. This article uses the Federal Register count and prints the gap rather than picking a side.
Van Loon in the district court
Six Tornado Cash users sued Treasury: Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale and Nate Welch. They filed on 8 September 2022 in the Waco Division of the Western District of Texas, 6:22-cv-00920, before Albright J. The case moved to Austin as 1:23-cv-00312 before Pitman J.
They sued on three theories. Two of them, under the First and Fifth Amendments, were lost below and never appealed. The one that went up was the Administrative Procedure Act claim, and it had three parts: that OFAC lacked authority to designate Tornado Cash because it is not a foreign national or person, because the immutable pool contracts are not “property”, and because Tornado Cash can have no property interest in them. The district court granted summary judgment to Treasury on all three points, holding that Tornado Cash is an entity that may be designated, that smart contracts are property, and that the DAO has an interest in them because it derives profits from the mixing and relaying services that run on them.
The Fifth Circuit, 26 November 2024
Judges Jones, Willett and Engelhardt heard the appeal as No. 23-50669. Willett wrote for the panel. The opinion reversed.
The holding appears in the opinion’s opening section:
we hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.
The reasoning ran in two layers. First the statute. IEEPA lets the President block “any property in which any foreign country or a national thereof has any interest”, 50 U.S.C. § 1702(a)(1)(B), and leaves “property” undefined. The court took the ordinary 1977 meaning from contemporaneous dictionaries and from Supreme Court authority, and reduced it to one sentence: “It is capable of being owned.” Applied to these contracts:
The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned.
The court relied on the right to exclude, and found that after the setup ceremony no one can exclude anyone from using the pools. It also recorded that the contracts kept running regardless of the designation, so that “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets”.
Second layer: OFAC’s own regulation. 31 C.F.R. § 510.323 defines property to include “contracts of any nature whatsoever” and “services of any nature whatsoever”. The court held that even inside that definition the items still have to be ownable, that immutable smart contracts are not contracts because “[i]mmutable smart contracts have only one party in play” and “there is no party with which to contract”, and that they are not services because they are “less like a ‘service’ and more like a tool that is used in performing a service”. The district court had reached for a vending-machine analogy. The panel answered that a vending machine has an owner who can unplug it, and that Tornado Cash “cannot ‘unplug’ the immutable smart contracts”.
The opinion records that this was only the fifteenth case in the circuit to consider agency deference after Loper Bright Enterprises v. Raimondo overruled Chevron. The court applied its own judgment to the statute, quoting the requirement to “determine the ‘best’ reading of a statute; a merely ‘permissible’ reading is not enough”.
The panel declined to decide whether Tornado Cash is an “entity” under IEEPA or whether it has an “interest” in the contracts. Those questions remain open. It closed by putting the problem back on Congress: “Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane.” The disposition was to reverse and remand with instructions to grant partial summary judgment on the APA claim.
The opinion also addressed the position of users. Because the software kept running and the blockchain “allows peer-to-peer transfers without requiring the recipient to consent to transfer”, the court observed that some users “may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent”. [P]
Delisting, 21 March 2025
On 21 March 2025 OFAC unblocked Tornado Cash and removed it from the SDN List. The Federal Register notice, signed by Acting Director Lisa M. Palluconi and published on 26 March 2025 at 90 FR 13823, states that the entity “is no longer subject to the blocking provisions of E.O. 13694, as amended, or E.O. 13722”.
Treasury’s accompanying statement, headed “Tornado Cash Delisting”, reads in relevant part:
Based on the Administration’s review of the novel legal and policy issues raised by use of financial sanctions against financial and commercial activity occurring within evolving technology and legal environments, we have exercised our discretion to remove the economic sanctions against Tornado Cash as reflected in Treasury’s Monday filing in Van Loon v. Department of the Treasury.
Treasury removed the designation as an exercise of discretion. The statement also says Treasury “will continue to monitor closely any transactions that may benefit malicious cyber actors or the DPRK, and U.S. persons should exercise caution before engaging in transactions that present such risks”.
The same notice updated Roman Semenov’s entry. His listing moved from [DPRK3] [CYBER2] to [DPRK3]. He remains on the SDN List; the cyber basis came off and the North Korea basis stayed.
Judgment on remand, 28 April 2025
The delisting did not end the case. The plaintiffs pressed for entry of judgment; Treasury responded and asked in the alternative for a stay. On 28 April 2025 Pitman J granted the plaintiffs’ motion, vacated in part the order that had denied their partial summary judgment motion and granted Treasury’s, granted the plaintiffs partial summary judgment on the APA claim, vacated the earlier final judgment, and stated that an amended final judgment would issue separately. The docket records the case as terminated that day.
United States v. Storm
The criminal case ran on its own track the whole time. A grand jury in the Southern District of New York returned a sealed indictment on 21 August 2023 charging Roman Storm and Roman Semenov on counts 1, 2 and 3. It was unsealed on 23 August 2023, the same day Storm was arrested in the Western District of Washington. The case went to Judge Katherine Polk Failla as 23 Cr. 430 (KPF). Storm was arraigned on 6 September 2023, pleaded not guilty, and was released on a $2 million personal recognizance bond secured by property in Auburn, Washington.
A superseding indictment followed, S1 23 Cr. 430. From the parties’ trial filings, the three counts were:
- Count One, conspiracy to commit money laundering, with the government required to prove a conspiracy to conduct financial transactions knowing the property involved represented the proceeds of unlawful activity and designed to conceal or disguise the location, source or control of those proceeds, under 18 U.S.C. § 1956(a)(1)(B)(i).
- Count Two, conspiracy to operate an unlicensed money transmitting business, charging Storm with operating a money transmitting business knowing that it involved the transmission of funds derived from a criminal offense or intended to be used to promote unlawful activity. The government withdrew its separate 18 U.S.C. § 1960(b)(1)(B) federal registration theory before trial and did not proceed on it.
- Count Three, conspiracy to violate IEEPA. In its own pretrial brief the government stated that this count “relies on OFAC’s still-valid sanctions against the Lazarus Group, not the Tornado Cash pools”.
The verdict, 6 August 2025
The jury reached a partial verdict. The clearest record of it is a joint letter the U.S. Attorney’s Office filed on 11 August 2025, memo-endorsed by Failla J the same day:
On August 6, 2025, the trial concluded when the jury returned a verdict of guilty as to Count Two, and could not reach a verdict as to Count One and Count Three.
Storm was convicted of Count Two, conspiracy to operate an unlicensed money transmitting business. Counts One and Three were left unresolved and remain allegations.
The parties set a post-trial motions schedule: motions by 30 September 2025, oppositions by 31 October, replies by 19 November. Failla J adopted it and set a conference for 18 December 2025, excluding time under the Speedy Trial Act on the basis that resolving the post-trial motions could change the scope of any retrial.
Where it stands as of 31 July 2026
From the S.D.N.Y. docket, last known filing 16 June 2026:
Storm moved under Rule 29 for a judgment of acquittal. Failla J heard oral argument on 9 April 2026 and deferred ruling. Later that month she set a retrial on Counts One and Three to begin on 26 October 2026, expressly “contingent upon the Court’s ruling on Mr. Storm’s pending motion for judgment of acquittal”. In June 2026 she adopted a pretrial schedule running from government expert disclosures on 7 August 2026 to Daubert and in limine motions on 29 September 2026. Storm has not been sentenced on Count Two. [P]
The sanctions position, checked against the OFAC SDN List file downloaded from treasury.gov on 31 July 2026: BLENDER.IO is still listed under CYBER2. The mixer SINBAD is still listed under DPRK3 and CYBER2. Roman Semenov is still listed under DPRK3. There is no Tornado Cash entry.
One more piece of the current position sits at FinCEN rather than OFAC. On 23 October 2023 FinCEN proposed a special measure that would treat convertible virtual currency mixing as a class of transactions of primary money laundering concern. A search of Federal Register documents from that agency mentioning “primary money laundering concern” from 24 October 2023 to 31 July 2026 returns no final rule adopting it. The proposal is still a proposal.
What I think happened
Read the arc backwards and it stops looking like a defeat for the government.
OFAC lost the property argument on the narrowest available ground. What the Fifth Circuit held is that twenty-odd chunks of code nobody can alter or delete fail a definition written in 1977 that assumes somebody owns the thing being frozen. The ruling leaves the lawfulness of mixers alone. It leaves open whether sanctions can reach privacy software of some other design. The panel then declined to decide whether Tornado Cash is an entity at all, and declined to decide whether it has an interest in the code. Two of the three doors the plaintiffs pushed on are still shut, and nobody knows what is behind them.
Then look at how the government got out. It removed the designation four months after losing, and its own statement calls that an exercise of discretion. Discretion is reversible. A different administration, on the same statute, can reach a different judgment about the same technology, and the Fifth Circuit’s reasoning binds three states. If you read the delisting as a change in the law, you have misread it. The law changed in New Orleans in November 2024. Washington changed its policy in March 2025, citing what it called novel legal and policy issues, which is the language of a choice being made rather than an obligation being met.
The criminal theory never depended on the designation. The government said so in writing, before trial, in a brief arguing about what evidence the jury should see: Count Three rested on OFAC’s sanctions against the Lazarus Group, which are still in force, and on transactions in sanctioned property, rather than on the Tornado Cash listing that the Fifth Circuit had by then already voided. And Count Two, the one count the jury resolved, has nothing to do with sanctions at all. It is a money transmitting count. It would have existed if Tornado Cash had never been designated.
That is why the jury convicting on Count Two and hanging on One and Three is not the split most people read it as. The count that stuck is the one with the least exotic theory behind it, and it is the count that any developer of any transmission tool has to worry about, whatever OFAC does or does not list.
I would also not treat the hung counts as an acquittal. They are unresolved. As of the end of July 2026 there is a retrial date on the calendar for 26 October, conditioned on a judge’s ruling that has been pending since April. The case could end in three different places from here and I have no idea which one.
There is a line in the opinion that gets very little attention and should get more. The Fifth Circuit noticed that a blockchain lets someone push assets to you without your consent, and said in plain terms that users “may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent”. A federal appeals court wrote down that a US person could acquire a sanctions problem by being sent money. The listing that prompted the observation is gone. The mechanism it describes is still there, and it applies to any designated address.
What would have changed the outcome
Nothing structural. Most articles on this desk end with an arrangement that would have changed the result. This one cannot, and pretending otherwise would be the dishonest move.
A qualified custodian does not un-designate a protocol. An entity wrapper does not make a smart contract ownable, and making one ownable would have cut against the plaintiffs, since ownability is the exact quality they needed the court to reject. Nobody in this arc lost assets to a platform failure or to a badly drafted terms-of-use clause. Trusts, entities, custody arrangements and advisory relationships are all beside the point here. There is no product answer to this story and no service answer either.
What the arc leaves behind is a question about dates and a question about records.
Start with the delisting, because it runs forward only. OFAC removed Tornado Cash from the SDN List on 21 March 2025, and that removal did not reach backwards. A transfer made on 3 January 2023 involved a designated entity on the day it happened, and the March 2025 notice leaves that day exactly as it was. Anyone reconstructing their own history needs to know which side of 8 August 2022 and which side of 21 March 2025 each transaction falls on. That is answerable from records that already exist, on a public ledger, with timestamps.
Screening then runs on that history. An exchange or a bank assessing a deposit looks at where the funds have been, and compliance systems keep the tags they applied at the time. A counterparty asking about a 2023 transaction is asking about 2023. Being able to produce the date, the transaction hash and the counterparty, without reconstructing all of it from memory three years later, is the difference between a conversation and a frozen account. Keeping those records creates no legal defence and settles nothing about the underlying question. It preserves the ability to answer one.
Then there is the part you do not control at all. The Fifth Circuit wrote it down: someone can send you assets through a designated protocol without your knowledge or consent, and the exposure lands on you rather than on them. The only useful response is noticing it quickly, which means somebody actually looks at inbound transactions with the same attention they give to outbound ones.
One more piece of paper matters. While the designation was live, OFAC published notices telling users they could request licences to retrieve funds trapped in the pools, and clarifying that interacting with the open-source code was permitted while the transaction and pooling functions were not. Anyone who filed a licence request has a dated, official record of having asked. Anyone who waited it out has nothing on paper.
The rest of this belongs to a sanctions lawyer, and it belongs there before anyone touches the assets. This desk describes matters of public record and gives no legal advice, and a sanctions question about specific transactions is exactly the kind of question an article should not answer.
Sources
- Treasury press release, “U.S. Treasury Issues First-Ever Sanctions on a Virtual Currency Mixer, Targets DPRK Cyber Threats”, 6 May 2022:
https://home.treasury.gov/news/press-releases/jy0768 - Notice of OFAC Sanctions Actions, 87 FR 28865 (11 May 2022), FR Doc. 2022-10087, recording an entity added to the SDN List on 6 May 2022.
- Treasury press release, “U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash”, 8 August 2022:
https://home.treasury.gov/news/press-releases/jy0916 - Notice of OFAC Sanctions Action, 87 FR 49652 (11 August 2022), FR Doc. 2022-17272, designating TORNADO CASH under E.O. 13694 § 1(a)(iii)(B) as amended, signed by Andrea M. Gacki, dated 8 August 2022.
- Notice of OFAC Sanctions Action, 87 FR 68578 (15 November 2022), FR Doc. 2022-24798, the 8 November 2022 re-designation adding E.O. 13722 § 2(a)(vii).
- Notice of OFAC Sanctions Action, 87 FR 68581 (15 November 2022), FR Doc. 2022-24794, removing the 8 August 2022 listing.
- Van Loon v. Department of the Treasury, No. 23-50669 (5th Cir. 26 November 2024), Willett J, for a panel of Jones, Willett and Engelhardt:
https://www.ca5.uscourts.gov/opinions/pub/23/23-50669-CV0.pdf - Joseph Van Loon v. Department of the Treasury, No. 1:23-cv-00312 (W.D. Tex.), Pitman J, docket entry 110, order granting entry of judgment, 28 April 2025. Predecessor docket No. 6:22-cv-00920 (W.D. Tex., Waco), Albright J.
- Treasury press release, “Tornado Cash Delisting”, 21 March 2025:
https://home.treasury.gov/news/press-releases/sb0057 - Notice of OFAC Sanctions Action, 90 FR 13823 (26 March 2025), FR Doc. 2025-05096, unblocking TORNADO CASH as of 21 March 2025 and amending the entry for Roman Semenov, signed by Lisa M. Palluconi, Acting Director.
- United States v. Storm, No. 1:23-cr-00430 (S.D.N.Y.), Failla J. Docket and filed documents via CourtListener / RECAP:
https://www.courtlistener.com/docket/67720380/united-states-v-storm/ - United States v. Storm, Dkt. 227, joint letter of the U.S. Attorney’s Office dated 11 August 2025 with memo endorsement of Failla J, recording the 6 August 2025 verdict.
- United States v. Storm, Dkt. 155 and Dkt. 157, trial briefs describing Counts One, Two and Three and the withdrawal of the § 1960(b)(1)(B) theory.
- International Emergency Economic Powers Act, 50 U.S.C. §§ 1701, 1702(a)(1)(B), 1704.
- North Korea Sanctions and Policy Enhancement Act, 22 U.S.C. § 9214.
- E.O. 13694 (80 FR 18077), E.O. 13757 (82 FR 1), E.O. 13722 (81 FR 14943).
- 31 C.F.R. § 510.323, definition of property and property interest.
- FinCEN, “Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern”, Federal Register, 23 October 2023, FR Doc. 2023-23449. Proposed rule. No final rule found as of 31 July 2026.
- OFAC Specially Designated Nationals and Blocked Persons List,
sdn.csv, downloaded from treasury.gov on 31 July 2026.
Related on this desk
- CFTC v. Ooki DAO: a DAO can be sued, and lose — the other case about whether code and its users can be a legal person.
- United States v. Chen Zhi: the largest forfeiture in DOJ history — what the state does when it can reach the assets rather than only the protocol.
Disclosure. Max Avery is affiliated with Digital Ascension Group (DAG). Investment advisory services are offered through DAG Wealth, an SEC-registered investment adviser (CRD No. 328627). Registration does not imply a certain level of skill or training. DAG is not a law firm and does not provide legal or tax advice. Custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Nothing here is investment, legal, or tax advice, or a recommendation to buy or sell any asset. This article describes matters of public record; charges are allegations and defendants are presumed innocent unless and until proven guilty.