Van Loon v. TREA
122 F.4th 549
| 5th Cir. | 2024Background
- The Department of Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, an open-source cryptocurrency "mixer," due to its use by malicious actors, including North Korean hackers, for laundering stolen digital assets.
- Tornado Cash’s key functions are executed by immutable smart contracts on the Ethereum blockchain, which, after a "trusted setup ceremony," became unchangeable and unowned by any party, including their original developers.
- Plaintiffs, lawful users of Tornado Cash, challenged OFAC’s designation under the Administrative Procedure Act (APA), arguing that the sanctions exceeded OFAC’s statutory authority under the International Emergency Economic Powers Act (IEEPA).
- The district court ruled in favor of OFAC, holding that Tornado Cash could be sanctioned as "property" of a foreign national/entity. Plaintiffs appealed to the Fifth Circuit.
- The Fifth Circuit reversed, holding that Tornado Cash’s immutable smart contracts are not "property" under the ordinary or regulatory meanings because they cannot be owned, controlled, or excluded from use by any party.
- The court remanded, directing the district court to grant summary judgment for plaintiffs on their APA claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are immutable smart contracts "property" under IEEPA? | Not property; cannot be owned or controlled | Are "property" because OFAC defines broadly | Not property; must be ownable, which these are not |
| Do immutable smart contracts constitute "contracts"? | No; no party controls or accepts terms | Yes; akin to unilateral contracts or vending machines | Not contracts; require two parties, and these do not |
| Do immutable smart contracts provide "services"? | No; lines of code, not acts of service | Yes; provide a useful service | Not services; are tools, not human or entity acts |
| Did OFAC exceed its statutory authority? | Yes; can't sanction non-ownable code | No; statutory, regulatory definitions apply | Yes; exceeded authority by sanctioning non-property |
Key Cases Cited
- Meyer v. United States, 364 U.S. 410 (1960) (defining property as objects or rights susceptible of ownership)
- Dolan v. City of Tigard, 512 U.S. 374 (1994) (right to exclude is essential to property ownership)
- United States v. Craft, 535 U.S. 274 (2002) (property as bundle of sticks/rights)
- Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024) (Chevron deference overruled; courts independently interpret statutes)