tl;dr
The U.S. Fifth Circuit Court ruled that the Treasury overstepped by sanctioning Tornado Cash’s immutable smart contracts, stating they cannot be classified as "property" subject to sanctions. The decision reverses a lower court ruling and is a win for privacy advocates and blockchain developers. The...
The U.S. Fifth Circuit Court has ruled that the Treasury overstepped by sanctioning Tornado Cash’s immutable smart contracts, stating they cannot be classified as "property." This decision reverses a lower court ruling and is a win for privacy advocates and blockchain developers seeking clarity to build similar products. The court found that immutable smart contracts are not property because they cannot be owned or controlled, and therefore remain accessible to anyone, including sanctioned entities.
Furthermore, the ruling emphasizes that legislating is Congress's job and that protocols built on smart contracts operate without human intervention, making them ineligible to be classified as services. The broader designation and blocked status of Tornado Cash remain intact, and the case will be returned to the district court for further consideration.
In August 2022, the U.S. Treasury sanctioned Tornado Cash for allegedly facilitating over $7 billion in illicit transactions, including funds tied to North Korea's Lazarus Group. In August 2023, two developers, Roman Storm and Roman Semenov, were charged with money laundering and sanctions violations. In May 2024, Alexey Pertsev, another developer, was convicted and sentenced to 64 months in prison for laundering $1.2 billion.
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 appeals court ruled Tuesday that Tornado Cash's immutable smart contracts cannot be classified as a sanctioned entity, but its broader designation and blocked status remain intact. The case will be returned to the district court for further consideration, with the ruling specifying that self-executing code that could operate without any administrative control means some parts of Tornado Cash or other protocols forked from its codebase could still face sanctions.