by Sharon Cohen Levin, James M. McDonald, Eric J. Kadel Jr., Anthony J. Lewis, Judson O. Littleton, Adam J. Szubin, Shari D. Leventhal, and Berke B. Gursoy
Top left to right: Sharon Cohen Levin, James M. McDonald, Eric J. Kadel Jr., and Anthony J. Lewis. Bottom left to right: Judson O. Littleton, Adam J. Szubin, Shari D. Leventhal, and Berke B. Gursoy (photos courtesy of Sullivan & Cromwell)
Court Concludes that Immutable Smart Contracts Are Not “Property” Under Relevant Sanctions Legislation
SUMMARY
In a significant decision issued on November 26, 2024, the U.S. Court of Appeals for the Fifth Circuit held in Van Loon et al. v. Department of the Treasury that the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) exceeded its statutory authority under the International Emergency Economic Powers Act (“IEEPA”) by sanctioning Tornado Cash, a cryptocurrency mixing service that enables users to conduct anonymized cryptocurrency transactions through the use of immutable smart contracts. The case centered on whether these immutable smart contracts could be considered “property,” as required to be sanctionable under IEEPA. Relying on the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, which overruled the longstanding doctrine of Chevron deference to agency interpretations of statutory text, the Fifth Circuit concluded that immutable smart contracts did not constitute property and were therefore not subject to OFAC’s designation authority under IEEPA.
This ruling has potentially significant implications for OFAC’s efforts to sanction parties involved in decentralized finance (DeFi) and could alter the future enforcement landscape for parties and platforms that provide anonymity-enhancing services to cryptocurrency users.