The recent Fifth Circuit Court ruling on Tornado Cash, which determined that immutable smart contracts cannot be classified as “property” or services under the IEEPA, has significant implications for privacy-focused technology creators like the Samourai Wallet team. By establishing that decentralized and autonomous code is beyond the regulatory reach of sanctions, the ruling could bolster legal defenses for developers of privacy tools like Whirlpool, framing their work as neutral software creation rather than facilitation of criminal activity. This decision also raises the possibility of charges being dropped or reduced against Tornado Cash developers, potentially leading to their release from incarceration. However, while this precedent may protect privacy tech creators in the short term, the ruling highlights gaps in existing legislation, and governments may seek to amend laws to specifically target decentralized technologies, leaving the long-term legal landscape uncertain.
Sanctions Ruling Overturned, As Federal Prosecutor Steps Down
The Tornado Cash case has highlighted a complex intersection of privacy, legality, and government overreach in the cryptocurrency space. Tornado Cash, a decentralized protocol enabling anonymous crypto transactions, was sanctioned by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) in 2022 under accusations of facilitating illicit activities, including links to North Korea’s Lazarus Group. OFAC classified its immutable smart contracts as “property,” blocking their use in the U.S. However, the Fifth Circuit Court of Appeals recently overturned this designation, ruling that the smart contracts, being immutable lines of code not owned or controlled by any entity, fall outside the regulatory purview of the International Emergency Economic Powers Act (IEEPA). The court emphasized that the statutory limitations of IEEPA preclude such sanctions, highlighting the autonomy of blockchain technology and the legal challenges it poses.
This ruling comes amid broader legal battles surrounding Tornado Cash’s developers. Co-founders Roman Storm and Roman Semenov face charges of money laundering and sanctions violations in the U.S., while another developer, Alexey Pertsev, has been convicted of money laundering in the Netherlands, and is currently serving a 5 year sentence. Critics of the sanctions argue that Tornado Cash is a tool for privacy, not inherently criminal, and its open-source, decentralized nature means it operates independently of its creators. The court’s distinction between “mutable” and “immutable” smart contracts has significant implications for how blockchain technology is perceived and regulated, particularly concerning issues of ownership and control.
The resignation of Damian Williams, the U.S. Attorney overseeing Tornado Cash prosecutions, adds another layer of uncertainty to the case. Williams’ tenure included high-profile crypto-related prosecutions, and his departure in December 2024, alongside the potential appointment of former SEC Chair Jay Clayton as his successor, could signal shifts in the government’s approach to crypto-related enforcement. While the appellate court ruling challenges OFAC’s authority, ongoing criminal cases against Tornado Cash’s developers indicate the legal battles are far from over, as the boundaries between decentralization, accountability, and regulatory compliance continue to be tested.
From a legal standpoint, the court’s decision underscores the challenges of applying existing laws to decentralized technologies. The inability to classify immutable smart contracts as property or services under current frameworks raises questions about the efficacy of traditional regulatory approaches in addressing modern digital tools. While the ruling is seen as a victory for privacy advocates and the cryptocurrency sector, it leaves unresolved questions about how governments will regulate decentralized platforms in the future. For Tornado Cash and its developers, the immediate implications are mixed, with some relief for users but ongoing legal pressures that highlight the evolving tension between privacy innovation and regulatory oversight.
What Implications Does this Ruling Have on Other Privacy Tech Cases?
The ruling on Tornado Cash has significant implications for ongoing and future cases against developers of privacy-focused technologies like the Samourai Wallet team and their non-custodial mixing service, Whirlpool. By determining that Tornado Cash’s immutable smart contracts are not “property” and therefore cannot be sanctioned under the IEEPA, the court has set a legal precedent that could extend to other privacy tools.
In both the Tornado Cash and Samourai Wallet cases, the vast majority of users employed these privacy tools for legitimate purposes to enhance personal privacy on transparent blockchain networks, with criminal activity constituting only a small fraction of their usage, reflecting the reality that all technologies, regardless of intent, are inevitably exploited by bad actors. The privacy provided by tools like Tornado Cash and Samourai Wallet simply brought transparent blockchain transactions closer to the baseline privacy already inherent in cash, standard bank accounts, or PayPal, which are widely used by the general public today.
For the Samourai Wallet team, this ruling could bolster arguments that their development and deployment of privacy tools are distinct from facilitating criminal activity. The court’s emphasis on distinguishing between tools and services suggests that immutable code cannot be easily classified as a service or property subject to regulation. This differentiation may strengthen the defense of Samourai developers by framing their work as the creation of neutral, open-source tools rather than active participation in illicit activities. However, legal outcomes may still hinge on nuances like the governance structure of the platform, any financial benefits to developers, and jurisdiction-specific laws.
As for the Tornado Cash developers, the ruling represents a potential turning point in their legal battles. The court’s decision to invalidate OFAC sanctions on Tornado Cash’s smart contracts could weaken the government’s position in ongoing cases against the developers. If the software itself is deemed beyond the reach of sanctions and regulations, prosecuting individuals for creating or deploying it may become increasingly difficult. This could lead to charges being dropped or reduced, or even result in the release of developers like Roman Storm and Alexey Pertsev from incarceration. Still, outcomes will depend on how courts interpret their individual actions, such as their involvement in the governance of Tornado Cash or any evidence of direct participation in illegal activities.
Broader uncertainties still remain. While the ruling provides a clearer legal framework for evaluating decentralized privacy technologies, it also highlights gaps in existing legislation that governments may seek to address. There is a possibility that Congress or other legislative bodies could amend laws like the IEEPA to account for decentralized technologies, potentially closing loopholes that currently protect tools like Tornado Cash or Whirlpool. Until such changes are made, the ruling stands as a strong precedent for defending privacy technology developers, but its long-term impact will depend on the evolving legal and regulatory landscape.
