On November 26, the 5th Circuit Court of Appeals ruled that the US Treasury Department’s Office of Foreign Assets Control (OFAC) exceeded its authority by imposing sanctions on cryptocurrency mixer Tornado Cash’s immutable smart contracts. The court declared that these autonomous smart contracts, which operate without human intervention, could not be classified as “property” under federal law, putting them outside the scope of the International Emergency Economic Powers Act (IEEPA).
Cryptocurrencies are winning big time
the to rule It rescinds OFAC’s prior designation of Tornado Cash’s smart contracts on the sanctions list — a move that had significant implications for privacy and decentralization within the cryptocurrency industry. The judges stressed that immutable smart contracts are lines of code that are not subject to ownership or control, and therefore cannot be sanctioned as property.
Tornado Cash is an open source decentralized protocol that enables users to enhance the privacy of their crypto transactions on the Ethereum blockchain. By aggregating transactions and blocking the trail of funds, it provides a layer of anonymity.
In August 2022, the Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, alleging that it had been used to launder over $7 billion in cryptocurrencies since its creation in 2019, including funds linked to North Korean hackers. The sanctions were the first time the US government targeted a decentralized protocol rather than specific individuals or entities.
The Fifth Circuit’s decision focuses on the interpretation of “ownership” under IEEPA. The court concluded that immutable smart contracts — self-executing code that runs independently on the blockchain — do not constitute property because they cannot be owned or controlled by any individual or entity. This distinction is critical, as the IEEPA gives the Treasury Department the authority to regulate or prohibit transactions involving foreign proprietary interests but does not extend to a separate non-proprietary law.
“Immutable smart contracts are independent, self-executing pieces of code that operate without human intervention,” the court stated. “They do not possess proprietary attributes as traditionally understood under federal law.”
Crypto industry reactions
Paul Grewal, whose company Coinbase backed the legal challenge against the Treasury Department, praised The decision is considered a historic win for the cryptocurrency community. “Privacy wins,” he wrote on Leading this important challenge.
The Coinbase CLO stressed the court’s acknowledgment that “banning entire open source technology because a small portion of users are bad actors is not what Congress has allowed.” He added that the sanctions “expanded the Treasury Department’s authority beyond recognition,” and that the court’s decision corrects this abuse.
CLO Variable Fund Jake Chervinsky described Verdict as a “stunning victory for cryptocurrencies.” He added: “The court held that immutable smart contract protocols are not ‘property’ subject to sanctions ‘because they are not ownable’ and overturned OFAC’s 2022 designation of Tornado Cash. Decentralization wins.”
Matt Korva, a lawyer at Ethereum developer ConsenSys, He confirmed The importance of the decision as an examination of administrative abuses. He noted, “The Fifth Circuit Court of Appeals’ ruling in favor of the plaintiffs challenging the prior addition of Tornado Cash smart contracts to the IEEPA sanctions list is monumental. An incredible win here. Another blow to an administrative state that operates without updated and direct authority from Congress.”
Korva also noted the disproportionate burden placed on those affected by such government actions: “There is a huge cost to those affected in trying to correct this. This outcome would not have been possible without Coin Center, Paul Grewal of Coinbase, and the many minds and wallets who contributed to this The matter and similar challenges across the country in other cases.
Uniswap Labs CEO Hayden Adams Express Surprised by the court’s decision:Holy shit. Immutable smart contracts beat the Treasury in court. (…) It is unbelievable the extent to which cryptocurrencies will be eliminated in federal courts.
So far, the Treasury Department has not announced whether it will appeal the Fifth Circuit’s decision. The case is likely to be escalated to the Supreme Court if the government seeks to challenge the ruling further.
At press time, Tornado Cash (TORN) token was trading at $18.08, up 415% in the past 24 hours.
Featured image created with DALL.E, a chart from TradingView.com