The U.S. Fifth Circuit Court ruled on Tuesday that the Treasury Department exceeded its authority by sanctioning Tornado Cash’s immutable smart contracts, asserting that such autonomous software cannot be considered property.
The court determined that immutable smart contracts—code that cannot be altered or controlled by any entity—do not meet the legal definition of “property” eligible for sanctions. This decision overturns a lower court ruling and is seen as a pivotal victory for privacy advocates and blockchain developers seeking regulatory clarity.
According to the court, the smart contracts at issue “are not property because they are not capable of being owned.” The judges highlighted that over 1,000 participants in a “trusted setup ceremony” permanently removed any ability to modify or control the code. Consequently, these contracts remain openly accessible to anyone, including sanctioned entities such as North Korea’s Lazarus Group, regardless of the Treasury’s designation.
“Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane,” the court’s opinion stated. “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.”
The court further clarified that protocols built on immutable smart contracts cannot be classified as services, as services inherently involve “an intangible commodity in the form of human effort, such as labor, skill, or advice.”
Coinbase Chief Legal Officer Paul Grewal commented on the decision via X: No one wants criminals to use crypto protocols, but blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized”.
The U.S. Treasury initially sanctioned Tornado Cash in August 2022, accusing it of facilitating over $7 billion in illicit transactions, including funds linked to North Korea’s Lazarus Group.
Legal actions followed, with developers Roman Storm and Roman Semenov charged in August 2023 for money laundering and sanctions violations. In May 2024, developer Alexey Pertsev was sentenced to 64 months in prison for laundering $1.2 billion.
In September 2023, plaintiffs led by Joseph Van Loon appealed the Treasury’s actions, arguing that the Office of Foreign Assets Control (OFAC) had overstepped its authority under the International Emergency Economic Powers Act (IEEPA) by designating Tornado Cash’s immutable smart contracts as “property.”
Although the Fifth Circuit ruled that immutable smart contracts cannot be classified as sanctioned property, Tornado Cash’s broader designation and blocked status remain in effect.
The case now returns to the district court for further deliberation under the new interpretation of the law. “The idea is that [the district court] has to decide the merits again while applying the law as the Fifth Circuit now says it applies,” explained ConsenSys lawyer Bill Hughes on X.
However, the ruling applies specifically to self-executing code without administrative control. Certain elements of Tornado Cash or other protocols derived from its codebase could still face sanctions.
