What happened
On 26 November 2024 the US Court of Appeals for the Fifth Circuit set aside the Treasury's designation of the immutable Tornado Cash smart contracts. The case is Van Loon v. Department of the Treasury, No. 23-50669, decided by Judges Jones, Willett and Engelhardt, with Willett J writing.
The holding is narrower than the result sounds, and the precision is the story. The court did not hold that the contracts are not the property of a foreign national. It held that the roughly twenty addresses at issue, pool contracts made irreversibly unownable in a 2020 trusted setup ceremony, are not property at all under the International Emergency Economic Powers Act at 50 U.S.C. 1702(a)(1)(B) or under OFAC's own regulation at 31 C.F.R. 510.323. Property must be capable of being owned, and no one can own, alter, remove or exclude anyone from these contracts. They are not contracts either, since there is only one party, and not services, since they are a tool used in performing a service. Under Loper Bright, OFAC's reading of its own definition got no deference. The agency exceeded its statutory authority, so the designation is set aside under the Administrative Procedure Act.
What it changes
A blocking sanction is a property remedy. It orders everyone under US jurisdiction to freeze a thing somebody owns, which requires an owner on the other end who can be deprived of it. The boundary sits at control. A person, a company, a DAO, a mutable contract with an admin key: each has someone who can flip a switch, so each remains sanctionable. An immutable contract has no such someone. There is nothing to freeze and nobody to coerce, so the tool simply misses.
The court's sharpest evidence is practical rather than philosophical: even with the sanctions in force, the North Korean wrongdoers the designation was aimed at were not actually blocked from retrieving their assets. Immutability is not a shield somebody claims. It is the absence of the hook the statute reaches for.
What it does not change
Nothing about liability for people. Writing, deploying, promoting or profiting from code remains prosecutable. Mutable contracts, front ends, relayers and governance tokens stay designable, and the opinion says plainly that a mutable mixer has a controlling party and could be disconnected. Transacting with a designated person is still prohibited, whatever software sits in between.
Three things the court says, repeatedly and including at footnotes 61 and 76, that it is not deciding: whether Tornado Cash is an entity, person or national under IEEPA; whether it has an interest in the contracts; and anything at all about mutable smart contracts. The First and Fifth Amendment claims were lost below and not appealed, so there is no "code is speech" ruling here, which is the most common misreading of the result. The court invited Congress to close the gap. This is a ruling about the reach of one word in a 1977 statute, not a declaration that privacy tools are lawful.
Context
We covered the designation itself when it landed. OFAC withdrew that listing and re-issued it on 8 November 2022 with 53 Ethereum addresses, citing thefts attributed to North Korea: 455 million dollars from Ronin, 96 million from Harmony and 7.8 million from Nomad (opinion at 16).
Below, Judge Robert Pitman granted Treasury summary judgment on 17 August 2023, holding Tornado Cash a designable entity, the contracts property, and the DAO interested in them because it profits from mixing and relaying. The Fifth Circuit reversed only the property leg, and rejected its vending machine and unilateral contract analogies.
Criminal cases against individuals run on a separate track and this ruling does not touch them. Roman Semenov remains designated, Roman Storm's case is pending in the Southern District of New York, and Alexey Pertsev was convicted in the Netherlands in May 2024 and has appealed.
Tornado Cash is an Ethereum tool, but the chain is not why this matters. The line the court drew is: a sanction needs somebody who can be made to comply, and code with no controller is not somebody.