On November 26, 2024, a U.S. appeals court ruled that the Treasury Department's Office of Foreign Assets Control (OFAC) exceeded its authority by sanctioning the cryptocurrency mixer Tornado Cash.

The ruling also indicated that to reinstate the sanctions, Congress would need to amend a law from 1977, reflecting the complexities of adapting old laws to new technologies.

Despite the sanctions, the court noted that Tornado Cash remains accessible to anyone with internet access, underscoring the difficulties in enforcing such regulations in the digital realm.

Critics of the ruling express concern that it may encourage misuse of blockchain technology by bad actors, raising questions about the balance between innovation and regulation.

The Fifth Circuit's decision clarified that autonomous smart contracts cannot be regulated as property due to their lack of ownership, which is a significant interpretation of the International Emergency Economic Powers Act (IEEPA).

This legal challenge was brought forth by six Tornado Cash users, financially backed by Coinbase, who argued that smart contracts are not owned or controlled by any entity, thus should not be subject to sanctions.

Industry leaders, including Coinbase's Chief Legal Officer Paul Grewal, hailed the ruling as a historic win for the crypto sector, emphasizing its implications for privacy and civil liberties.

Judge Willett acknowledged the potential downsides of unregulated technology like Tornado Cash but emphasized that it is Congress's responsibility to amend laws to address modern challenges, rather than the courts'.

Legal experts cautioned that while the ruling specifically pertains to smart contracts without admin keys, it does not exempt the entire crypto mixing platform from future scrutiny by OFAC.

The decision highlights the challenges in regulating decentralized technologies, as services like Tornado Cash operate in a legal gray area without a central authority.

While the court recognized legitimate concerns about potential money laundering through Tornado Cash, it stated that software itself cannot be sanctioned under existing legal frameworks.

This ruling addresses ongoing debates about the government's ability to impose sanctions on technology associated with criminal activities, marking a pivotal moment in the intersection of law and technology.