Cryptocurrency users who crave privacy protection had a lot to be thankful for this Thanksgiving.
Two days before the holiday, a three-judge panel of the Fifth Circuit unanimously ruled that the Treasury Department's Office of Foreign Assets Control (OFAC) had “overstepped its Congressional authority and failed to provide substantial evidence.” “He acted in an unsubstantiated, arbitrary and capricious manner,” the court ruled. The decision was to sanction “Tornado Cash's open source, self-executing software, not any unauthorized person or entity.” People who abuse it. ”
To put it simply, Congress did not give OFAC the power to authorize software code that no one owns.
But let's back up. As we previously discussed about CoinDesk, Tornado Cash is a crypto mixer that makes tracking cryptocurrency transactions more difficult. Although there are many legal and legal uses for such services, there are also illegal uses. For example, cybercriminals and hostile nation-state actors use Tornado Cash and other services to protect their heinous activities.
As a result of the latter action, OFAC added many Tornado Cash addresses to the Specially Designated National and Blocked Persons (SDN) list.
However, under relevant statutory provisions, Congress only authorized OFAC to sanction property, including any interest in the property of particular persons.
And here, the court said in an opinion written by Judge Don Willett that because the immutable smart contracts at issue do not constitute property, OFAC cannot sanction them.
The court said, “Because that element is speculative, there is no need to refer to the other elements at issue in this case.” “The district court erred in giving 'fullest deference' to OFAC's definition of 'property' and finding that immutable smart contracts meet that definition,” the ruling said.
Last term, the U.S. Supreme Court's Roper-Bright decision abolished Chevron deference (the requirement that courts defer to government agencies' interpretations of vague statutory (or regulatory!) provisions), allowing the court to address “an obscure but fundamental issue.'' We are working on it,” he said. A proposal to apply independent judgment to determine what the law means.”
The court further stated that under both the simple meaning of property and OFAC's regulatory definition of property, the term means something that can be owned. And in this case, the immutable smart contract in question cannot be owned and therefore does not qualify as property.
But the court went further and made two points that could have implications for cryptocurrencies and smart contracts more broadly.
First, the court stated that the immutable smart contracts at issue were not themselves contracts, despite the misleading name and contrary to the district court's holding.
Although the district court found that these contracts were “nothing more than a type of unilateral contract enabled by the Code,” the Fifth Circuit panel stated that “in finding, the district court It ignored fundamental principles.” Although it is explained that all contracts must have at least two parties, here it is stated that an immutable smart contract is “just software code” and is not a party that can contract with another party; There's only one.
The Fifth Circuit found that its decision did not violate “blockchain case law.” This case law indicates that some smart contracts may actually function as contracts because in other cases at least two willing parties have agreed to enter into the contract. However, in an immutable smart contract with no owner, there are no contracting parties.
Second, the court held that the immutable smart contracts at issue are not themselves services, but are “more like tools used to perform services,” which is “not the same as being a service.” It was held that
Finally, the court concluded with a memorandum regarding its proper role in the constitutional system of governance. The report states that while courts “readily recognize the real-world downsides of certain uncontrollable technologies that are outside the scope of OFAC’s sanctioning authority,” “The legal agreements entered into by the government must be maintained and should not be tampered with.” ” The government refused to engage in “judicial legislation” that would “correct the law's blind spots or smooth its destructive effects.” He said doing so would “put him outside the[court's]lane” because “legislation is the job of Congress and Congress alone.”
It is unclear whether the government will ask the entire Fifth Circuit to review the decision or the U.S. Supreme Court. Notably, a similar case remains pending in the Eleventh Circuit. Reaching a different conclusion or using different reasoning to reach the same or similar conclusion could motivate the Supreme Court to reconsider the case.
Of course, it will be interesting to see what position the incoming Trump administration will take on this matter. Perhaps the new administration will agree that the Biden administration's OFAC should not have taken this unprecedented action.
And, of course, Congress can act at any time.
So for now, this is good news for the cryptocurrency community. But the story isn't over yet.
