US Treasury Provides a Way for Users to Recover Tornado Cash Funds

The US Treasury Department has said that residents and citizens in the US can apply for a license to recover any funds they have that are locked in the now-banned Ethereum coin-mixing tool Tornado Cash. The Treasury Department's move to ban Tornado Cash in August sent the crypto community into a frenzy over privacy and government oversight and left many wondering whether their everyday crypto activity could lead to criminal charges. The Treasury's Office of Foreign Asset Control (OFAC) also addressed other pressing questions about the implications of its sanctions on Tornado Cash.

The new guidance provides a way for users to lawfully withdraw their funds from the private transaction application by applying for an OFAC license — an authorisation from the OFAC to engage in a transaction that would otherwise be prohibited.

There is currently about $173 million (roughly Rs. 1,400 crore) left sitting in Tornado Cash's smart contract, at the time of publication, according to DefiLlama. Some of those funds likely belong to users who are worried about the legal repercussions of withdrawing them.

Three plaintiffs with funds in Tornado Cash filed a lawsuit against the Treasury Department last week, arguing that the sanctions had frozen their lawfully deployed assets — a case that may be affected now, since there is an available avenue to withdraw funds.

Following the initial sanctions announcement, anonymous users protested by ‘dusting', or sending various crypto wallets a small amount of ETH through Tornado Cash, including those of high-profile celebrities. OFAC's regulations would apply to these transactions, but the OFAC will not “prioritise enforcement” concerning this matter, the guidance stated.

The Tornado Cash website went offline after the sanctions, but the Tornado Cash app can still be accessed through other means. Engaging in any transaction with Tornado Cash remains prohibited for the US citizens and residents.