Tornado Cash, Crypto Proponents Notch Win vs. OFAC in Fifth Circuit Appeal

Tornado Cash and proponents of smart contract freedom in the U.S. notched a win against the U.S. Treasury and Office of Foreign Asset Control (OFAC) as the Fifth Circuit Court of Appeals ruled the agencies could not sanction the smart contract itself.

Tornado Cash had drawn the ire of the financial agencies as it had become popular with criminals and North Korean hackers to enable traceless money mixing. As such, OFAC prevented any American from interacting with Tornado Cash's services.

But an appeal that had been led by crypto activists and championed by Coin Center and Coinbase's legal team attempted to challenge the notion of a smart contract, or code, itself being sanctioned.

On Tuesday, the court delivered an opinion against the smart contract sanction, noting "Tornado Cash, as defined by OFAC, does not own the services provided by the immutable smart contracts."

"Because these immutable smart contracts are not “property” under the word’s common, ordinary meaning or under OFAC definitions, we hold that OFAC exceeded its statutory authority," the appeal ruling stated. The ruling returns the case to district court.

For crypto advocates, the ruling is a definite win. It certainly opens the door to seeing Tornado Cash and privacy shielding services once again being allowed for U.S. users. The ruling also vindicated many in the crypto community that have stated smart contracts are not property. Coinbase Chief Legal Officer Paul Grewal was among the first to take a victory lap, saying "Privacy wins."

A Dutch court convicted Tornado Cash co-founder Alexey Pertsev of money laundering last year and sentenced him to five years in prison. Co-founders Roman Storm and Roman Semenov await facing money laundering charges at trial in the U.S.