U.S. Treasury Takes Aim at Cryptocurrency Mixers Over Money Laundering Concerns
The United States Department of the Treasury is making significant moves in the realm of cryptocurrency regulation as it seeks to combat the exploitation of convertible virtual currency mixing by illicit actors. In response to the increased use of cryptocurrency mixing services by various nefarious groups around the world, the Financial Crimes Enforcement Network (FinCEN) is proposing to designate international crypto mixers as a “primary money laundering concern.”
This initiative aims to enhance transparency in the crypto market, address money laundering risks, and bolster national security. Notable entities like Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK) have all benefited from the use of anonymous cryptocurrency transactions. These illicit activities have drawn the attention of U.S. regulators and policymakers, leading to this significant proposal.
The proposed rule would require domestic financial institutions and agencies to adhere to specific record-keeping and reporting requirements for transactions involving cryptocurrency mixers. The intention is to curb the illicit use of these mixing services, prevent money laundering, and thwart the financial support of cybercriminals and terrorist groups.
Notably, this proposal is part of the broader U.S. government’s efforts to regulate the cryptocurrency sector. It comes in the wake of actions taken against crypto mixers, such as the sanctions imposed on Tornado Cash in 2022. These measures were justified based on the platform’s use by groups like the North Korean state-sponsored hacking organization, Lazarus Group. However, the recent proposal is more comprehensive, aiming to categorize all international cryptocurrency mixers as potential national security threats.
The move is closely associated with recent global events, particularly the Middle East crisis involving the Israeli-Palestinian conflict and the actions of Hamas. The U.S. Treasury Department explicitly connects these recent events to the decision to intensify regulations regarding cryptocurrency mixers. The objective is to disrupt the financial activities of terrorist groups like Hamas and Palestinian Islamic Jihad by introducing stringent controls on anonymous cryptocurrency transactions.
While the government is determined to tackle illicit finance and money laundering through this proposal, it has faced criticism from the crypto industry, which argues that such measures may be excessive and could encroach on user privacy. Earlier sanctions on crypto platforms faced legal challenges but were upheld in a federal court in August.
The proposal is now open for public comment for a period of 90 days. As the crypto industry continues to evolve, so too does the regulatory landscape, with significant implications for the global financial system and national security. Financial innovation and the importance of balancing regulation with privacy will remain central to the ongoing discourse.