- U.S. Fifth Circuit Court rules Treasury exceeded authority by sanctioning Tornado Cash’s immutable smart contracts
- Court determines immutable smart contracts cannot be classified as “property” under existing sanctions law
- Decision focuses on autonomous nature of smart contracts that operate without human intervention
- Ruling maintains broader Tornado Cash sanctions while specifically addressing immutable code components
- Case returns to district court for reconsideration under new Fifth Circuit interpretation
Fifth Circuit Limits Treasury’s Authority Over Crypto Privacy Tools
The U.S. Fifth Circuit Court delivered a significant ruling on Tuesday that limits the Treasury Department’s authority to sanction autonomous cryptocurrency software, specifically addressing the controversial Tornado Cash privacy protocol.
Legal Boundaries for Smart Contract Sanctions
The court determined that immutable smart contracts – self-executing code that cannot be modified – fall outside the Treasury’s sanctioning authority because they cannot be classified as property under current law. This decision directly challenges the Treasury’s Office of Foreign Assets Control (OFAC) 2022 sanctions against Tornado Cash.
"Mending a statute’s blind spots or smoothing its disruptive effects falls outside our lane," the court stated, emphasizing that such legislative adjustments must come from Congress.
Technical Implications
The ruling hinges on the autonomous nature of these protocols. The court found that since smart contracts operate without human intervention, they cannot be classified as services, which require "human effort, labor, skill, or advice."
Coinbase Chief Legal Officer Paul Grewal commented: "Blocking open source technology entirely because a small portion of users are bad actors is not what Congress authorized."
Background and Enforcement History
The Treasury sanctioned Tornado Cash in August 2022, citing its alleged role in facilitating $7 billion in illicit transactions, including those linked to north korea‘s Lazarus Group. Three developers face legal consequences:
- Roman Storm and Roman Semenov: Charged with money laundering and sanctions violations
- Alexey Pertsev: Sentenced to 64 months for laundering $1.2 billion
Next Steps
ConsenSys lawyer Bill Hughes indicated the case will return to district court for reconsideration under the Fifth Circuit’s interpretation. While the ruling protects self-executing code, other aspects of Tornado Cash remain subject to sanctions.
The decision maintains OFAC’s broader designation of Tornado Cash while specifically addressing the legal status of autonomous smart contracts, creating a precedent for future cryptocurrency privacy tools and protocols.
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