Court Declares Sanctions Against Tornado Cash Illegitimate — What This Means for the XRP Lawsuit

In a notable development for the crypto sector, a U.S. appeals court has ruled that the U.S. Department of the Treasury, through the Office of Foreign Assets Control (OFAC), overstepped its authority when it imposed sanctions on the notorious cryptocurrency mixer Tornado Cash . Notably, Tornado Cash, a decentralized cryptocurrency mixer designed to enhance privacy, was sanctioned by OFAC in August 2022 under allegations of facilitating money laundering, including connections to North Korea’s nuclear weapons program. However, the appeals court argued on Tuesday that Tornado Cash’s smart contracts do not qualify as property or services tied to any individual or organization, thus they cannot be blocked under the International Emergency Economic Powers Act (IEEPA). In the latest ruling, the court emphasized that while OFAC’s definition of “property” is broad, it does not encompass the decentralized, immutable nature of Tornado Cash’s smart contracts. “Tornado Cash’s immutable smart contracts (the strings of code that provide privacy) are not the ‘property’ of any foreign individual or organization, meaning they cannot be blocked underIEEPAand that OFAC exceeded its authority as defined by Congress,” the panel of judges noted. The ruling has triggered a dramatic 24-hour 436% surge in the price of Tornado Cash’s native token, TORN, which was trading at just over $18 at press time. That said, this ruling, which overturned a prior district court decision, could have significant ramifications not only for the cryptocurrency space but also for the ongoing SEC vs. Ripple lawsuit . Ripple’s Chief Legal Officer, Stuart Alderoty, weighed in on the ruling, drawing parallels to the ongoing SEC lawsuit against Ripple. “This week’s federal court rulings striking down the SEC’s dealer rule and Treasury’s sanctions on Tornado Cash share a theme: Regulators don’t make law; they enforce it as written. If they want more power, only Congress—accountable to the people—can grant it.” Alderoty noted . Notably, the ruling has ignited speculation that the Ripple lawsuit may be dismissed. Courts remind authorities that their mandate is to enforce existing legislation as precisely drafted by Congress rather than to expand regulatory boundaries through expansive interpretations. For years, the pro-Ripple community has criticized the SEC for its approach of “regulation by enforcement.” Ripple CEO Brad Garlinghouse recently weighed in on the broader regulatory climate, calling out the Biden administration for being “hostile” to cryptocurrencies. In an interview with CNBC, he emphasized that much will depend on who replaces SEC Chair Gary Gensler, who he described as having “led the reign of terror” over the crypto industry. Despite the challenges, Garlinghouse expressed optimism, noting that regardless of the 2024 U.S. election results, the industry will likely see more favorable conditions moving forward.