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A US Treasury official clarifies his position on cryptocurrency mixing services
Last year, the Financial Crimes Enforcement Network (FinCEN) proposed a rule to classify convertible cryptocurrency mixing as a “class of transactions” with primary money laundering concerns.
The regulation would represent the agency’s first use of its authority under Section 311 of the Patriot Act to target a specific class of transactions.
However, according to Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, the US Treasury Department is not seeking to ban cryptocurrency mixers.
Speaking at CoinDesk’s annual consensus conference in Austin, Nelson raised concerns about FinCEN’s 2023 proposal, which would also require virtual asset service providers (VASPs) to report transactions involving mixers.
According to the agency, CVC mixing involves facilitating virtual currency transactions in a way that hides the source, destination, or amount of the transactions.
According to FinCEN, the lack of transparency surrounding crypto mixers poses money laundering and security risks, with illicit actors such as Hamas, Palestinian Islamic Jihad and North Korea implicated in the activity. The proposed rule would require covered financial institutions, including banks, to report any transactions that they know of, suspect, or have reason to suspect involve CVC mixing.
The cryptocurrency industry interpreted FinCEN’s proposal and the US Department of Justice’s enforcement actions against mixing services such as Tornado Cash and Samourai Wallet as steps towards a blanket ban on cryptocurrency mixers. Nelson, however, firmly denied this interpretation.
“In the end, this [proposal] it’s not a ban on mixers,” Nelson said. “This is a proposed rule designed to promote transparency.”
Nelson added that he understands cryptocurrency users’ desire for financial privacy, but stressed the need to balance privacy with the prevention of terrorist financing. She emphasized Treasury’s intent to work with the cryptocurrency industry to improve privacy without facilitating illicit activity.
“There is a difference between obfuscation and anonymity enhancing services that support privacy,” Nelson said. He stressed the importance of ensuring that mixers are not used to circumvent anti-money laundering (AML) and know-your-customer (KYC) regulations, which can attract bad actors, including North Korea.
“It’s not that everyone needs to know who you’re transacting with,” Nelson explained, “just that people and VASPs need to know that they are not ‘unknowingly’ funding Hamas or North Korea’s weapons program.”
Industry experts weigh in
Commenting on this, Mark Smorgun, CEO of Fuse, said: “Public blockchains use transparency to build trust between parties, but this feature makes them less practiced in the real world. Mainstream adoption of crypto technology will require new privacy tools like ZK and collaboration with regulators to ensure companies can use this technology without going to prison.”
Eskil Tsu, co-founder of GoPlus, added: “As the space matures, greater transparency is critical to the growth and security of the industry. While we support efforts to prevent the misuse of crypto mixers for illicit activities, it is critical to balance this with the need to protect user privacy. Collaboration with regulators to develop censorship-free solutions that improve privacy without enabling bad actors is critical. GoPlus is building a Web3 user security network that prioritizes user transparency and accountability by providing permissionless security data and a service environment for the end user.”
Iva Wisher, co-founder and COO of Prom, also noted: “Although the institutional impact on cryptocurrencies is often considered an obstacle, it is quite clear that at this scale, sometimes well-defined structures are needed for both parties. Brian Nelson’s latest commentary on crypto mixers points to a balanced approach to a more transparent market and the health of a broader financial system Prom is a modular ZkEVM Layer 2 that allows interoperability between various chains, including EVM-capable networks. and not EVM”.