# US court of appeals says Tornado Cash contracts were not property

Source: https://x.com/BillHughesDC/status/1861545321450336342
Kiwi News: https://news.kiwistand.com/stories/US-court-of-appeals-says-Tornado-Cash-contracts-were-not-property?index=0x674660a3e26584b305cfbcd05d046143e0bb4f14f2bf100fa552bff042ddac514fe4772e
Submitted by sileo.eth on 2024-11-26 UTC, 17 upvotes, 8 comments

## Summary

A federal appeals court ruled that Treasury overstepped its authority when it sanctioned the immutable smart contracts deployed by the Tornado Cash developers, holding that the contracts are not property of a foreign person or entity. The court reasoned that the contracts are not capable of being owned because more than one thousand volunteers took part in a "trusted setup ceremony" that irrevocably removed anyone's ability to update, remove, or control the code. The post also argues that OFAC's practice of treating "contracts" and "services" as property does not apply, since the contracts are lines of code and no human effort is expended by them. The author notes the ruling covers only the admin-key-free smart contracts, not the rest of Tornado Cash, and credits Coinbase and Paul Grewal as a major driver of the case.

## Article

BIG NEWS:  Federal appeals court says Treasury overstepped its authority when sanctioning immutable smart contracts deployed by the @TornadoCash devs because they are NOT property of a foreign person or entity.  

"The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts. In fact, because these immutable smart contracts are unchangeable and unremovable, they remain available for anyone to use and “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets,” even under the sanctions regime. Simply put, regardless of OFAC’s designation of Tornado Cash, the immutable smart contracts continue operating. And furthermore, because the software continues to operate regardless of the sanctions, and the blockchain technology “allows peer-to-peer transfers . . . without requiring the recipient to consent to transfer,” some users may become liable whenever someone transfers them digital assets via Tornado Cash, even without their knowledge or consent."

Further, OFAC's longstanding practice of including "contracts" and "services" as property doesn't apply here, because these smart contracts aren't contracts or services.  On the services point, "No human effort is expended by the immutable smart contracts.
And even by the Department’s definition, the immutable smart contracts, which are nothing more than lines of code, are less like a “service” and more like a tool that is used in performing a service. That is not the same as being a service.” 

Moreover, they aren't ownable, so even under OFAC's own regulations they aren't property that can be sanctioned. 

In sum, they cannot be blocked under federal law.  They certainly can't be blocked as an exercise of OFAC's discretion.  

This does NOT mean that the rest of Tornado Cash is out of bounds for Treasury/OFAC too.  The issue was about smart contracts with no admin key.  

A good win.  One which the Supreme Court would be unlikely to reverse.  Another case where Loper Bright helped because the court wasn't required to defer to a permissible reading by the agency.  

Kudos to @coinbase (@iampaulgrewal) for being a big driver of this.

## Comments

**sileo.eth**: Interesting new development in that saga, worth checking out. Also, I tried my best to write a meaningful title

**macbudkowski.eth**: here's a comment from Coinbase Chief Legal Officer:
https://x.com/iampaulgrewal/status/1861549058797772874

**tim**: The Tornado Cash token is up 240% on this news, and related privacy projects have also pumped

**tim**: > Today the Fifth Circuit held that 
@USTreasury’s sanctions against Tornado Cash smart contracts are unlawful.

What does this mean specifically? Can consumers now freely transact with Tornado Cash again without having to fear being sanctioned?

**tazes.eth**: The whole ruling is bullish for the Ethos of crypto!

**macbudkowski.eth**: Hal Finney looks from the clouds and smiles today

**tudorizer.eth**: Beyond the current speculation, what do you think are the actual consequences?

**macbudkowski.eth**: I think it increases the chances we will have privacy-friendly stablecoins, which might increase the adoption significantly :)