Big victory in Tornado Cash case as judge says OFAC exceeded authority

A United States appeals court has reversed a lower court’s decision, finding the Office of Foreign Assets Control (OFAC) exceeded its authority in sanctioning Tornado Cash’s immutable smart contracts — a major win for the protocol and its users. 

In a Nov. 26 opinion, a Fifth Circuit Appeals Court three-judge panel said that while Treasury has the power to take action against “property,” Tornado Cash’s smart contracts were not property under the International Emergency Economic Powers Act (IEEPA) as they are immutable, meaning they can not be controlled or owned. 

“We hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority,” the trio of judges wrote.

“In sum, they cannot be blocked under federal law,” Bill Hughes, a lawyer at Consensys, summarized on X. “They certainly can’t be blocked as an exercise of OFAC’s discretion.” 

The appeals court directed a Texas district court to grant a motion for partial summary judgment from plaintiff-appellants led by Joseph Van Loon.

“These smart contracts must now be removed from the sanctions list and US persons will once again be allowed to use this privacy-protecting protocol,” Coinbase’s chief legal officer Paul Grewal explained in a Nov. 26 X post.

This is a developing story, and further information will be added as it becomes available.