The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, recently announced proposed rules aimed at enhancing scrutiny over cryptocurrency mixing platforms. According to the agency, such services are leveraged by terror groups and rogue nations to obscure their financial activities. The institution refers to these platforms as “Convertible Virtual Currency Mixing” or CVC mixing services.
In the most recent policy update, FinCEN aims to require financial organizations to disclose transactions linked to international CVC mixing platforms, which it identifies as posing a “critical risk to both money laundering and national security.” Prominent Bitcoin (BTC) and Ethereum (ETH) mixing services that utilize Coinjoin technology allow users to amalgamate their transactions, thus disguising the origins and final destinations of their funds.
Andrea Gacki, FinCEN’s director, noted that cryptocurrency mixing platforms facilitate the “financial mechanisms for ransomware attacks, rogue nations, and other criminal enterprises to underwrite their illegal activities.” Deputy Treasury Secretary Wally Adeyemo reiterated the department’s commitment to inhibiting the use of crypto mixers by terrorist organizations, cybercriminals, and sanction evaders.
After previously categorizing various cryptocurrency mixing services like Tornado Cash and Blender.io, the Treasury Department proceeded to propose new regulations. These platforms are accused of facilitating the laundering of millions of dollars originating from hacks associated with countries such as North Korea.
The agency disclosed that Tornado Cash was implicated in “obscuring the transfer of over $455 million pilfered in March 2022 by the OFAC-listed, North Korea-affiliated Lazarus Group in the most substantial virtual currency theft recorded to date.”
However, privacy proponents argue that regulatory actions against mixers adversely impact regular users who rely on them. Coin Center, a nonprofit organization focused on cryptocurrency policy, lodged a formal objection against the Treasury Department’s ban on Tornado Cash in October 2022, asserting that it exceeds the Treasury’s legal authority.
Coinjoin technologies mask user identities by pooling funds from diverse sources. While such activities can sustain privacy without malevolent purposes, FinCEN maintains that these tools are abused by malicious actors.
In addition to Tornado Cash and Blender.io, the Office of Foreign Assets Control (OFAC) has identified several cryptocurrency addresses linked to alleged malefactors. There is speculation that upcoming proof-of-stake (PoS) validators and proof-of-work (PoW) miners may have the capacity to block transactions from sanctioned entities and individuals.
In the Ethereum network, there has been a growing caution toward OFAC-compliant blocks over the last two years, with approximately 30% of Ethereum blocks currently adhering to OFAC guidelines. Moreover, in early May 2021, the Bitcoin mining company Marathon generated the inaugural OFAC-compliant block, although the company later discontinued this approach.
The latest action by FinCEN is in line with a legislative initiative led by Sen. Elizabeth Warren (D-MA), which has garnered the support of 100 additional lawmakers. They have urged the Biden administration to address the mounting concerns related to “cryptocurrency-related illicit financial risks.”
What are your views on FinCEN’s recent actions targeting crypto mixing services? We invite you to share your insights and opinions on this issue in the comments section below.
Frequently Asked Questions (FAQs) about FinCEN regulations on cryptocurrency mixing services
What is FinCEN’s latest action concerning cryptocurrency?
FinCEN, the Financial Crimes Enforcement Network, has proposed new regulations aimed at increasing scrutiny and transparency around cryptocurrency mixing services, referred to as Convertible Virtual Currency Mixing or CVC mixing.
The U.S. Department of the Treasury is the governing body overseeing FinCEN. Andrea Gacki is the current director of FinCEN, and Deputy Treasury Secretary Wally Adeyemo has also emphasized the department’s commitment to these regulations.
What are cryptocurrency mixing services?
Cryptocurrency mixing services are platforms that allow users to combine their cryptocurrency transactions with those of other users. This makes it difficult to trace the original source and final destination of the funds. Services like Tornado Cash and Blender.io are examples.
Why is FinCEN concerned about cryptocurrency mixing services?
FinCEN identifies these services as posing an “acute money laundering and national security risk.” They are alleged to facilitate financial mechanisms that empower ransomware attacks, rogue nations, and other illegal activities.
What does FinCEN hope to achieve with these new regulations?
FinCEN aims to mandate financial institutions to report transactions involving international cryptocurrency mixing services. The goal is to mitigate the risks associated with money laundering and national security.
Who else is supporting these regulatory actions?
Senator Elizabeth Warren and 100 other lawmakers are supporting this move. They have been urging the Biden administration to take actions to tackle cryptocurrency-related illicit financial risks.
What are the criticisms against FinCEN’s proposed regulations?
Critics, particularly privacy advocates, argue that these regulations can negatively impact ordinary users who depend on these services for privacy. Coin Center, a nonprofit organization, has lodged a formal complaint against the Treasury Department, claiming that the regulations exceed their statutory authority.
Are there any other entities besides mixing services that could be affected?
Yes, there is speculation that future proof-of-stake (PoS) validators and proof-of-work (PoW) miners might possess the capability to block transactions based on sanctioned individuals and addresses.
What is the stance of the Ethereum and Bitcoin ecosystems on these regulations?
Approximately 30% of Ethereum blocks are currently adhering to OFAC (Office of Foreign Assets Control) guidelines. Bitcoin mining company Marathon had also produced an OFAC-compliant block in early May 2021, although they later abandoned this approach.
What are OFAC-compliant blocks?
OFAC-compliant blocks are blocks in the blockchain that adhere to guidelines set by the Office of Foreign Assets Control. These guidelines may include not processing transactions from sanctioned individuals or countries.
More about FinCEN regulations on cryptocurrency mixing services
- FinCEN Official Website
- U.S. Department of the Treasury
- Tornado Cash Official Website
- Blender.io Official Website
- Senator Elizabeth Warren’s Legislative Initiatives
- Coin Center Official Website
- Office of Foreign Assets Control (OFAC)
- Marathon Patent Group
- Convertible Virtual Currencies – FinCEN Guidance
- Cryptocurrency and Money Laundering