U.S. Court Sides With Tornado Cash and Overturns Sanctions, Says Smart Contracts ‘Not Property’

A U.S. appeals court has ruled that the Treasury Department’s sanctions against the crypto mixer Tornado Cash were unlawful and an overreach of authority.

In 2022, The Office of Foreign Assets Control’s (OFAC) sanctioned Tornado Cash – which allows users to obfuscate and anonymize their crypto transactions on the Ethereum (ETH) network – under allegations that it was allowing North Korean agents to launder stolen funds.

Its developers have been targeted with lengthy legal proceedings and the threat of prison time ever since.

Now, a New Orleans-based U.S. Court of Appeals for the Fifth Circuit led by Judge Don Willett wrote that the OFAC’s sanctions failed to correctly define “property” in its statute against the service.

Judge Willet says that under the International Emergency Economic Powers Act, the President is permitted to “block… any property in which any foreign country or a national thereof has any interest.”

However, Willet says that if the definition of “property” is something that is “capable of being owned,” then Tornado Cash and its immutable smart contracts can’t qualify as such, making the sanctions unlawful.

The Judge also notes that since Tornado Cash’s smart contracts are “unchangeable and unremovable,” they remain available for anyone – including North Korean wrongdoers – to continue using despite sanctions.

Says Willet,

“More importantly, Tornado Cash, as defined by OFAC, does not own the services provided by the immutable smart contracts. A homeowner may own the right to trash-removal services and a client may own the right to legal services performed by a lawyer, but neither the homeowner nor the client owns the person performing the trash-removal services or the lawyer—for good reason. Similarly, Tornado Cash as an “entity” does not own the immutable smart contracts, separate and apart from any rights or benefits of the services performed by the immutable smart contracts.

Contrary to the Department’s arguments, the immutable smart contracts are not services. So even when we consider OFAC’s regulatory definitions, the immutable smart contracts are not property because they are not ownable, not contracts, and not services.”

TORN, Tornado Cash’s utility token, rallied almost 900% on the ruling.

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