US Appeals Court Rules Against OFAC Sanctions on Tornado Cash’s Immutable Smart Contracts

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".