Fifth Circuit Court of the United States ruled on Tuesday that Treasury had overstepped in sanctioning Tornado Cash’s smart contracts. The autonomous software, the court said, cannot be categorized as property.
The Fifth Circuit held that when smart contracts are immutable—meaning no entity can modify or control them—they cannot be classified as "property" Sanctions are available under the existing laws.
Industry experts say the decision is an important victory for privacy activists and blockchain developers looking to create similar products.
Smart contracts that are immutable at the heart of the issue "are not property because they are not capable of being owned," Noting that more than 1,000 participants participated in the a "trusted setup ceremony" The court found that the removal of the ability to control or update the code was permanent.
As a result, You can also find out more about the following:se contracts remain accessible to anyone—including sanctioned North Korean entities—regardless of the Treasury's Office of Foreign Assets Control (OFAC) designation,
"Mending a statute's blind spots or smoothing its disruptive effects falls outside our lane," the rulingA panel of judges has handed down a decision. “We decline the Department's invitation to judicial lawmaking—revising Congress's handiwork under the guise of interpreting it.
“Legislating is Congress's job—and Congress's alone."
Because protocols built on smart contracts operate without “human intervention,” they cannot be classified as services since services, by definition, require "An intangible product in the form human effort such as skill, labor or advice." Tuesday's ruling states.
"Nobody wants criminals using crypto protocol." Coinbase's Chief Legal Officer Paul Grewal wrote in a post to X on Tuesday. "Congress did not authorize the blocking of open-source technology because some users were bad actors.
"These sanctions stretched Treasury's authority beyond recognition, and the Fifth Circuit agreed," Grewal Added
Treasury Sanctioned Tornado Cash in August 2022 for allegedly facilitating over $7 billion in illicit transactions, including funds tied to North Korea's Lazarus Group.
In August 2023, two developers, Roman StormRoman Semenov and, both developers, were accused of money laundering and sanction violations. Alexey Pertsev (another developer) was found guilty and sentenced in May 2024 to 64-months imprisonment for laundering $1.2billion.
In September 2023, Joseph Van Loon and other plaintiffs appealed, challenging the U.S. Department of the Treasury's Office of Foreign Assets Control sanctions against Tornado Cash.
The plaintiffs argued that OFAC exceeded its authority under the International Emergency Economic Powers Act (IEEPA) by designating Tornado Cash's immutable smart contracts as "property" Subject to sanctions The appeal followed a district court ruling that upheld OFAC's actions.
While the appeals court ruled Tuesday that Tornado Cash's immutable smart contracts cannot be classified as a sanctioned entity, its broader designation and blocked status remain intact.
This case has now been returned to district court "with the idea that it has to decide the merits again while applying the law as the Fifth Circuit now says it applies," Bill Hughes, an attorney for ConsenSys, wrote about the company in a You can post a comment below. On Tuesday, X will be a.
The decision only applies to code that can be run without supervision, so some Tornado cash or protocols that have been forked off its code base could still be sanctioned.
Editor by Sebastian Sinclair