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In a decision that has largely flown under the radar, on November 26, 2024, the Fifth Circuit issued a ruling that largely strips OFAC‘s ability to block cryptocurrency transactions that the Circuit all but conceded were being used by North Korea and Russia for illegal purposes, including arms purchases and sanctions evasion. Loon v. Department of the Treasury, Office of Foreign Assets Control, 23-50669. The court ruled that anonymous, decentralized crypto transactions weren’t “property” and therefore couldn’t be blocked under the relevant enabling legislation that goes back to the 1970s. The court used a combination of “originalism” and “textualism” to conclude that since crypto didn’t exist in 1970 it couldn’t have been considered by Congress to have fallen within the definition of “property” as used in the statute at the time. The “evidence” that the court found for this astounding approach to statutory construction was an edition of Black’s Law Dictionary published at the time. I think it was the same edition that my parents bought for me as a present when I was admitted to law school, and even I knew at the time it wasn’t much of a source of authority that I could rely on, even if I did put it on my shelf to please them.
The court’s decision frankly astounds me. First, it is hard to imagine a more egregious and simple-minded application of “originalism” and “textualism” principles, if you can call them principles. The decision shows how wrong-headed this approach to statutory and constitutional interpretation really is.
Second, the decision is a virtual roadmap for rogue state actors and international criminals to engage in money-laundering on a massive scale. The court conceded that Russian and North Korean state actors seemed to be behind the anonymous cryptocurrency in question. But the court overruled OFAC’s blocking order anyway.
The court gave a lengthy description of how anonymous crypto generally works. In the case of anonymous, immutable “coins” there is a fixed amount of a given crypto type that is created, which then becomes permanent, anonymous, fixed and unchangeable.
The Fifth Circuit said this made crypto coins something other than “property…because they are incapable of being owned.” Huh? With the right password you can control your interest in them, sell them, assign them, and otherwise turn them into traditional cash or other value. Isn’t that the very definition of “property”? We all learned in our first year of law school that the concept of “property” involved a package of rights, and associated obligations, which certainly includes what crypto seems to entail. Sure, crypto didn’t exist in the 1970s, when OFAC’s enabling legislation was passed, but why can’t the concept of “property” evolve to take account of changing circumstances, especially when crypto has so many of the underlying features of what we have always customarily referred to as “property”? Oh, right, we’re supposed to look to text at the time of passage, and original intent at that same time, which precludes the evolution of legal concepts. But the common law is all about such evolution, as Oliver Wendell Holmes Jr. pointed out in his book of the same name. What a load of hooey these two theories are.
Consider also the practical effect of the decision. In telling rogue actors, both state and criminal, how to launder money and evade sanctions, the decision threatens to undermine our entire sanctions infrastructure. Is that really in our interest? And, if you think at all about the policy underlying the creation of OFAC and that infrastructure, you would probably conclude our policy should be to discourage money laundering rather than encourage it. Doesn’t that lead you to want to conclude that crypto really is a form of “property?” Oh, right again, “textualism” and “originalism” are supposed to preclude considerations of policy too. Now they evidently also undermine our core national security interests.
The Fifth Circuit’s more recent decisions in the case of the Corporate Transparency Act, or CTA, beneficial ownership filings, have generated more publicity and attention, especially because of the Court’s flip-flops on the preliminary injunction, which unquestionably is a bad judicial look. The Fifth Circuit opinion that upheld the CTA, for a couple of days, pointed out that the CTA was important to combat money laundering, and encouraging our allies to do the same. That could also be said of the OFAC blocking order at issue here.
A legitimate opinion could have said that because the crypto in question was entirely anonymous, blocking the entire issue could adversely impact the interests of innocent parties, requiring a sorting out of detailed questions like how to identify and protect the rights of innocent but anonymous parties while freezing the assets of rogue states and criminals. That would not be easy (by design). But that’s not what the Fifth Circuit ruled. It concluded the crypto wasn’t “property” and therefore couldn’t be blocked by OFAC at all.
When my kids were little, they liked to play John Madden’s Sports on one of the early devices. Sometimes I played with them. When you did something that was particularly bone-headed, which in my case was often, John Madden’s distinctive voice screamed, “Oh, no, what was he thinking?!?” As I read this opinion, all I could think of was John Madden’s voice. Bone-headed.
The views expressed here are those of the author, and do not necessarily represent or reflect the views of NYCLA, its affiliates, its officers, or its Board.
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