On Jan. 21, 2025, the Fifth Circuit Court of Appeals delivered its ruling, responding to a lawsuit filed by six individuals who claimed the sanctions violated the Administrative Procedure Act. The court concluded that the Treasury’s Office of Foreign Assets Control (OFAC) exceeded its jurisdiction by sanctioning Tornado Cash’s immutable smart contracts, which, by their nature, cannot be owned or controlled by any party.

OFAC sanctioned Tornado Cash in Aug. 2022, alleging its involvement in laundering illicit funds for North Korea’s Lazarus Group. The sanctions restricted any transactions using Tornado Cash and categorized its smart contracts as “property.” However, the court rejected this classification, pointing out that the unchangeable nature of these contracts means they cannot be modified, controlled, or owned—not even by their original creators.

According to the court, Tornado Cash’s immutable smart contracts fall outside the definition of “property” under the International Emergency Economic Powers Act. It stressed that these self-executing programs operate independently and remain impervious to shutdowns or alterations.

The ruling also addressed the plaintiffs’ defense of Tornado Cash’s lawful applications, such as ensuring financial privacy and protecting against cyberthreats. One plaintiff described using the service to donate anonymously to Ukraine’s war effort, avoiding potential retaliation. Another cited the need to safeguard their identity after receiving threats tied to their cryptocurrency holdings.

This decision represents a pivotal moment for advocates of blockchain privacy, as it could constrain the government’s ability to sanction decentralized technologies. Legal analysts anticipate that the ruling will contribute to ongoing discussions about cryptocurrency regulation and the governance of open-source blockchain systems.

OFAC has not yet indicated whether it will escalate the case to the Supreme Court. For now, the case returns to the district court, where further proceedings will take place in light of the appellate court’s findings.

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