aOn November 26, the Fifth Circuit Court of Appeals ruled that the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its authority by sanctioning crypto mixer Tornado Cash’s immutable smart contracts. The court declared that these autonomous smart contracts, which operate without human intervention, cannot be classified as “property” under federal law, effectively placing them outside the scope of the International Emergency Economic Powers Act (IEEPA).
Crypto Wins Big Time
The ruling overturns 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 crypto industry. The judges emphasized that immutable smart contracts are lines of code not subject to ownership or control, and thus 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 pooling transactions and obscuring the trail of funds, it offers a layer of anonymity.
In August 2022, OFAC sanctioned Tornado Cash, alleging that it was used to launder more than $7 billion worth of cryptocurrency since its creation in 2019, including funds linked to North Korean hackers. The sanctions marked the first time the US government targeted a decentralized protocol rather than specific individuals or entities..
The Fifth Circuit’s decision centers on the interpretation of “property” under the IEEPA. The court concluded that immutable smart contracts—self-executing code that runs autonomously on a blockchain—do not constitute property because they are not capable of being owned or controlled by any individual or entity. This distinction is crucial, as the IEEPA grants the Treasury the authority to regulate or prohibit transactions involving foreign property interests but does not extend to autonomous code without ownership.
The court stated, “Immutable smart contracts are autonomous and self-executing pieces of code that function without human intervention. They do n
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Author: Jake Simmons
