The U.S. Fifth Circuit Court ruled that the Treasury Department exceeded its authority by sanctioning Tornado Cash’s immutable smart contracts, which it stated cannot be classified as property under the International Emergency Economic Powers Act. The court emphasized that immutable smart contracts cannot be controlled or modified, making them ineligible for sanctions. This decision reverses a lower court ruling and is significant for privacy advocates and blockchain developers. The Treasury had sanctioned Tornado Cash in August 2022, alleging it had facilitated over $7 billion in illicit transactions, including those linked to North Korea's Lazarus Group. The court pointed out that protocols operating without human intervention cannot be classified as services, which rely on some form of human effort. While the ruling protects the smart contracts from being considered a sanctioned entity, other parts of Tornado Cash may still face sanctions. The case is to be returned to the district court for re-evaluation under the new legal interpretation.

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