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Fifth Circuit Court Rules Treasury Overstepped in Sanctioning Tornado Cash's Immutable Smart Contracts

Nov 27, 2024, 12:07 AM

A U.S. federal appeals court has ruled that the U.S. Treasury Department exceeded its authority by sanctioning Tornado Cash's immutable smart contracts. In the case of Van Loon v. Treasury, the Fifth Circuit Court of Appeals found that these smart contracts are not "property" of any foreign national or entity, and therefore cannot be subject to sanctions under current law. The court declared that "legislating is Congress’s job—and Congress’s alone," emphasizing the need for legislative clarity in regulating emerging technologies. The ruling overturns previous sanctions imposed by the Treasury's Office of Foreign Assets Control (OFAC) on Tornado Cash, a cryptocurrency mixer that enables users to enhance privacy in blockchain transactions. Plaintiffs, including users of Tornado Cash and supported by Coinbase, challenged the sanctions on the grounds that they unlawfully targeted open-source software code rather than foreign individuals or entities. This decision is considered a significant victory for the cryptocurrency industry, privacy advocates, and proponents of decentralized technology. By determining that immutable smart contracts cannot be considered property capable of being owned, the court has limited the Treasury's ability to sanction such decentralized tools. The ruling may also impact ongoing cases related to the development of privacy-enabling technologies in the blockchain space.