OFAC & Tornado Cash: two years after the listing
In August 2022 the US Treasury placed the Ethereum mixer Tornado Cash on the SDN list. Two years later we ask: how effective was the listing — and what does it mean for European investigators?
When the US Office of Foreign Assets Control (OFAC) placed Tornado Cash on the SDN list (Specially Designated Nationals) in August 2022, it was a precedent: for the first time a software protocol — not a person, not a company — was sanctioned. Two years and several court cases later, a sober look at the effects is worthwhile.
What the numbers show
Immediately after the listing, Tornado Cash volume dropped by around 90 %. Many regulated wallets and DEXs automatically blocked interaction with the listed smart contracts. It resembled a classical banking embargo — except that the "blocked party" was not an account, but executable code.
After the initial collapse, however, volume stabilised at a lower but constant level. Three developments stand out:
- Fork operations: Copies of the Tornado Cash code are still out there and run by smaller user groups.
- Alternative mixers: Sinbad, ChipMixer (until its seizure in 2023), and others partially filled the gap.
- Cross-chain workarounds: Users moved to THORChain swaps and similar protocols offering functionally similar obfuscation.
The legal complication
In November 2024, a US federal appeals court ruled in Van Loon v. Department of the Treasury that OFAC had exceeded its authority by sanctioning immutable smart contracts. The reasoning: a smart contract is not "property" within the sanctions-law definition, and an entity (the Tornado Cash DAO) cannot dispose of immutable code.
The practical impact of the ruling is limited — compliance departments at large banks and exchanges continue to honour the blocks. But it signals how difficult it is to fit classical sanctions instruments onto decentralised infrastructure.
What does this mean for European investigators?
OFAC listings are not directly binding on EU institutions, but in practice they have strong indirect effects:
- European CASPs with US ties (payment providers, banking partners) effectively adopt them.
- The EU equivalent — the EU sanctions database — partially follows OFAC's rhythm on crypto addresses.
- In cross-border investigations, the OFAC status of a cluster is almost always a review point.
How Coinator handles it
In Coinator, listed addresses are marked as such. During cluster analysis, OFAC flags propagate, so investigators immediately see when a cluster under investigation is linked to sanctioned entities. At the same time, the heuristics remain methodologically open — every investigator can reconstruct why a given address was assigned to a given cluster.
Transparency about methodology remains an essential quality criterion in an increasingly politicised sanctions landscape.