The United States Court of Appeals for the Fifth Circuit has ruled against the Treasury Department’s Office of Foreign Assets Control (OFAC), siding with six plaintiffs-appellants.
The court determined that immutable smart contract protocols are not “property” subject to sanctions “because they are not capable of being owned” and struck down OFAC’s 2022 designation of Tornado Cash.
The crypto mixing protocol, which is often used for money laundering by such nefarious actors as North Korea, was originally sanctified by the OFAC back in 2022.
However, six Tornado Cash users argued that the OFAC did not have the authority to sanction the controversial protocol since the protocol is not a foreign entity, a person, or property.
The court ended up ruling that the OFCA does not have the power to block immutable smart contracts.
While the court did acknowledge the “downsides” posed by such “uncontrollable technology,” it rejected the Department’s attempt at “judicial lawmaking.”
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“This is a huge victory. The court agreed with what we’ve been arguing from day one: immutable smart contracts are not property subject to sanctions,” Jerry Brito, executive director of Coin Center, stated in a social media post.
“We appreciate the Court’s careful consideration in this matter. Looking ahead, Coinbase will not relent in our efforts to advocate for clear, fair rules that foster innovation in the US and abroad,” Paul Grewal, chief legal officer at Coinbase, said in a recent statement. Grewal stressed that blocking open-source technology due to a small portion of malicious users was unreasonable.
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Earlier this week, a district also struck down the SEC’s proposal to extend the definition of the term “dealer” to decentralized protocols and automated market makers. This was also considered to be a significant win for the cryptocurrency industry.
