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Fifth Circuit Reverses OFAC Sanctions on Tornado Cash
- Client News
- November 26, 2024
Paul, Weiss secured a significant appellate victory for our clients in a high-profile case against the Department of the Treasury’s Office of Foreign Assets Control (OFAC), challenging OFAC’s addition of Tornado Cash, an open-source software project enhancing privacy on the blockchain, to the Specially Designated National and Blocked Persons list. Reversing a district court decision that had upheld OFAC’s sanctions, the U.S. Court of Appeals for the Fifth Circuit held that the immutable smart contracts at the core of the Tornado Cash software project were not “property” under the International Emergency Economic Powers Act (IEEPA), and that OFAC had exceeded its statutory authority.
Paul, Weiss brought suit in 2022 against the Department of the Treasury on behalf of plaintiffs Joseph Van Loon, Tyler Almeida, Alexander Fisher, Preston Van Loon, Kevin Vitale, and Nate Welch to challenge the sanctions. Those individuals use Tornado Cash to protect their privacy while engaging in transactions on the blockchain. We argued that the immutable smart contracts, which are unchangeable and uncontrollable lines of code, do not meet the statutory definition of “property” because they cannot be owned. The district court granted summary judgment in favor of the Department of the Treasury.
In a detailed opinion, the Fifth Circuit held that the immutable smart contracts are not capable of being owned, as they cannot be altered, removed, or controlled by anyone, including their creators. The court emphasized that property must be capable of ownership, which includes the right to possess, use, and exclude others. The appellate panel further noted that, while OFAC’s concerns about illicit activities are legitimate, the statutory language of IEEPA does not support the designation of immutable smart contracts as property. The Fifth Circuit reversed the district court’s decision and remanded the case with instructions to grant the plaintiffs’ motion for partial summary judgment.
The Paul, Weiss team includes litigation partner Kannon Shanmugam, who argued the appeal.