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It's interesting to me that the Fifth Circuit only considered "control" at the smart contract level, and does not seem to consider the role of validators in their opinion. A substantial portion of ETH blocks are built with relays that censor transactions with OFAC-sanctioned contracts, and it seems to me there is now an open question as to whether validators that use non-censoring relays could be sanctioned directly.

The software codes here—the twenty Tornado Cash addresses for immutable smart contracts—are tools used in providing a service of pooling and mixing the deposited Ether prior to withdrawal. Indeed, the immutable smart contract provides a “service” only when an individual cryptocurrency owner makes the relevant input and withdrawal from the smart contract; at that point, and only at that point, the immutable smart contract mixes deposits, provides the depositor a withdrawal key, and, when provided with that key, sends the specified amount to the designated withdrawal account. In short, the immutable smart contract begins working only when prompted to do so by a deposit or entry of a key for withdrawal. More importantly, Tornado Cash, as defined by OFAC, does not own the services provided by the immutable smart contracts. A homeowner may own the right to trash-removal services and a client may own the right to legal services performed by a lawyer, but neither the homeowner nor the client owns the person performing the trash-removal services or the lawyer—for good reason. Similarly, Tornado Cash as an “entity” does not own the immutable smart contracts, separate and apart from any rights or benefits of the services performed by the immutable smart contracts.76

(Not saying they should, just remarking on the fact that it seems to have gone completely unaddressed.)

Of course this was a concern already, but what with the Treasury focused on the Tornado Cash contracts, it was less central than I suspect it might be soon. This strategy would be somewhat in keeping with legal theories around other "malicious" code, where it's broadly speaking legal to write a devastating computer virus, but a whole lot less legal to run one.

The Fifth Circuit has just opined that the smart contracts that comprise the Tornado Cash cryptocurrency tumbler are "not property because they are not capable of being owned", and thus cannot be sanctioned by OFAC.

The six plaintiffs-appellants are users of Tornado Cash. They argue that Tornado Cash’s inclusion on the SDN list exceeded OFAC’s statutory authority. The district court disagreed, granting summary judgment to the Department and finding Tornado Cash subject to OFAC’s sanctioning authority. Van Loon and the other plaintiffs appealed, making the same principal argument here—that Tornado Cash’s open-source, self-executing software is not sanctionable under the Act (as opposed to the rogue persons and entities who abuse it). OFAC’s concerns with illicit foreign actors laundering funds are undeniably legitimate. Perhaps Congress will update IEEPA, enacted during the Carter Administration, to target modern technologies like crypto-mixing software. Until then, we hold that Tornado Cash’s immutable smart contracts (the lines of privacy-enabling software code) are not the “property” of a foreign national or entity, meaning (1) they cannot be blocked under IEEPA, and (2) OFAC overstepped its congressionally defined authority.

The immutable smart contracts at issue in this appeal are not property because they are not capable of being owned. More than one thousand volunteers participated in a “trusted setup ceremony” to “irrevocably remov[e] the option for anyone to update, remove, or otherwise control those lines of code.” And as a result, no one can “exclude” anyone from using the Tornado Cash pool smart contracts. In fact, because these immutable smart contracts are unchangeable and unremovable, they remain available for anyone to use and “the targeted North Korean wrongdoers are not actually blocked from retrieving their assets,” even under the sanctions regime. Simply put, regardless of OFAC’s designation of Tornado Cash, the immutable

Full opinion