The Biden administration has designated crypto “mixers” as primary money-laundering hubs, signaling a crackdown on illicit activities in the cryptocurrency market. The United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has proposed new regulations that would require domestic financial institutions and agencies to implement stricter recordkeeping and reporting requirements for transactions involving crypto mixers.
Increasing Concerns Over Illicit Sources
The proposed regulations come as FinCEN has assessed that the percentage of convertible virtual currency (CVC) transactions processed by CVC mixers originating from likely illicit sources is on the rise. By addressing this growing concern, the U.S. Treasury Department aims to combat the exploitation of convertible virtual currency mixing by various illicit actors, including state-affiliated cyber actors, cybercriminals, and terrorist groups.
Broadening Efforts to Shape the Crypto Ecosystem
The U.S. Treasury Department’s proposal is part of a broader effort to shape the future of the crypto ecosystem. It employs laws typically used against foreign banks and jurisdictions, highlighting the seriousness with which the government views crypto-related money laundering. The move follows mounting pressure from Capitol Hill, particularly in light of the role of cryptocurrencies in financing militant groups.
“Today’s action underscores Treasury’s commitment to combating the exploitation of convertible virtual currency mixing by a broad range of illicit actors, including state-affiliated cyber actors, cybercriminals, and terrorist groups,” said Wally Adeyemo, deputy Treasury secretary.
Under the proposed regulation, targeted entities are given an opportunity to take remedial action, potentially leading to their release from the sanctions. The regulation will undergo a 90-day public comment period before it can be potentially adopted.
Mixers are cryptocurrency platforms that facilitate relatively anonymous exchanges. In recent months, these platforms have faced increased regulatory scrutiny, with U.S. regulators imposing sanctions and charging their founders. The proposed rules would require U.S. financial institutions and agencies to identify, collect, and report specific information related to international mixer transactions, including personal and transactional details.
The significance of designating mixers as primary money-laundering concerns lies in the broad sanction authority it grants the Treasury, including the ability to cut off targets from U.S. markets. The Treasury plans to leverage rarely-used powers established after the September 11, 2001 terrorist attacks to tackle national security threats.
While mixers represent only a fraction of the cryptocurrency market, the proposed regulation serves as a stern warning to other crypto platforms. By increasing transparency and cracking down on illicit activities, the Treasury aims to deny access to the U.S. and global financial systems for such actors.
Experts suggest that FinCEN’s proposal could potentially have a chilling effect on certain crypto activities, further associating them with terrorist financing and money laundering. However, given recent actions taken by U.S. authorities against mixers, this development does not come as a surprise. In recent years, the U.S. Treasury and Justice Departments have prioritized targeting crypto platforms that provide anonymity services or possess weak compliance systems, enabling bad actors to finance their operations.
