Why weren't Tornado Cash's immutable contracts property?

On August 8, 2022, Treasury announced on its website that Tornado Cash had been used to launder more than $7 billion in virtual currency since 2019. Its announcement included more than $455 million stolen by the Lazarus Group, which Treasury identified as a North Korean state-sponsored hacking group. Treasury sanctioned Tornado Cash and subsequently defended its immutable smart contracts as property subject to blocking under the International Emergency Economic Powers Act, or IEEPA.

The Fifth Circuit’s November 26, 2024, printed opinion separated those propositions. Evidence that criminals used the contracts did not establish that anyone could own them. Treasury needed the second proposition to sustain the property theory before the court.

What did Treasury block?

OFAC’s August 8, 2022, designation identified Tornado Cash and listed cryptocurrency addresses associated with it. On November 8, 2022, Treasury rescinded that designation and simultaneously redesignated Tornado Cash under executive orders addressing malicious cyber activity and North Korea.

The distinction matters because the appeal concerned the operative designation, not merely Treasury’s original announcement. The government presented Tornado Cash as an organization whose activities extended beyond publishing computer code.

The plaintiffs challenged Treasury’s treatment of the immutable smart contracts. These were programs deployed on Ethereum that executed transactions according to fixed rules. As the Fifth Circuit described them, nobody could subsequently change or remove them.

That was the feature the court examined. An address on a sanctions list identifies a target. It does not, by itself, establish that the thing associated with that address satisfies the statute’s definition of sanctionable property.

What does IEEPA actually authorize?

IEEPA does not give Treasury an unrestricted power to prohibit anything that assists a foreign adversary. Section 1701 establishes the emergency framework. The President must identify an unusual and extraordinary threat, originating wholly or substantially outside the United States, to national security, foreign policy, or the economy.

Section 1702 supplies the relevant powers. Its blocking provision concerns property in which a foreign country or its national has an interest. It authorizes restrictions on dealings involving that property when the statutory jurisdictional conditions are met.

The sequence is important. First, there must be property. Then comes the question of a qualifying foreign interest. A foreign actor’s interest in using something cannot dispense with the initial requirement.

Treasury’s regulations describe property broadly. The cyber-related sanctions regulations and the North Korea sanctions regulations include tangible and intangible interests, services, and contracts. But a regulatory catalogue cannot enlarge the authority Congress granted. The appeal therefore turned on the meaning of property, not simply on whether Treasury could identify a listed regulatory term.

Who could own these contracts?

The Fifth Circuit treated the capacity to be owned as an essential characteristic of property. Ownership entails rights over something, including the ability to exclude others. The immutable contracts lacked that characteristic.

Their developers could not revoke access. Tornado Cash could not prevent sanctioned users from executing them. Nor could the organization alter the contracts to impose new conditions. Once the relevant administrative control had been relinquished, the code continued operating without an owner capable of directing it.

The court did not hold that software can never be property. It distinguished these immutable contracts from programs that remain subject to someone’s control. Its holding concerned the contracts before it, not every smart contract, every component of Tornado Cash, or every asset passing through the system.

That distinction also answers a tempting objection. Treasury did not need to prove that an owner personally approved each laundering transaction. The more basic problem was that nobody possessed the ownership rights Treasury’s theory assumed existed.

Doesn't a smart contract count as a contract?

Treasury relied on regulatory language covering “contracts of any nature whatsoever.” The name appeared to offer a direct route from a smart contract to a recognized category of property.

The Fifth Circuit rejected the shortcut. A program called a contract is not necessarily a legal agreement containing enforceable rights and obligations. These immutable programs executed coded instructions. The court found that their operation did not establish a contract with an identifiable counterparty merely because a user supplied the required inputs.

The government's services argument encountered a related problem. Calling the programs a service did not establish that Tornado Cash owned them or controlled their operation. The court distinguished a tool performing a function from someone providing a service through that tool.

The same separation applied to relayers, which could facilitate transactions and receive fees. Economic activity around the contracts did not establish ownership of the contracts themselves. Treasury needed a property interest in the object it sought to block, not merely a business connection to its use.

Could Treasury's expertise settle the question?

The court reviewed the agency’s statutory authority independently. It cited the Supreme Court’s June 28, 2024, decision in Loper Bright Enterprises v. Raimondo, which rejected mandatory judicial deference to an agency’s interpretation merely because a statute is ambiguous.

That did not erase Treasury’s evidence about North Korean theft or the reasons for sanctions. It separated factual expertise from legal authority. Treasury could explain how the system assisted illicit transfers. The judiciary still had to decide whether Congress had authorized this particular prohibition.

The Fifth Circuit also addressed the practical mismatch. Blocking the immutable contracts did not give Treasury or Tornado Cash the technical ability to stop their execution. The programs remained available to users who ignored the prohibition, while people subject to United States law faced restrictions.

Technical persistence alone does not invalidate a sanction. Here, however, the absence of anyone able to stop or change the contracts reinforced the court’s conclusion that they were not ownable property.

Did laundering evidence fill the gap?

No. Treasury’s August 2022 figures explained its enforcement objective. They were agency assertions about illicit activity, not findings the Fifth Circuit needed to adopt to decide the ownership question.

Even accepting the seriousness of the national security concern, the court refused to convert usefulness to money launderers into a property right. Benefit and ownership are different legal propositions. A criminal can benefit from infrastructure without owning it.

The court acknowledged that the statutory framework might not address this technology as Treasury wished. It assigned that problem to Congress. The existence of a regulatory gap did not authorize the court to expand the word property until the challenged contracts fit.

The Fifth Circuit reversed the district court’s judgment and directed it to grant the plaintiffs partial summary judgment on this issue. On March 21, 2025, OFAC separately removed Tornado Cash from its sanctions list. That later administrative action should not be confused with the narrower statutory holding issued in November 2024.

What is the verdict?

The Fifth Circuit rejected Treasury’s position because the immutable contracts could not be owned. Their usefulness to sanctioned actors did not supply ownership, exclusion rights, or control. Treasury had documented a reason to pursue Tornado Cash, but that reason was not a substitute for statutory authority over the particular contracts it blocked. The defect was in the property theory, not in the seriousness of money laundering.