Swan Bitcoin, a California-based Bitcoin services platform, recently made an announcement that it will be terminating the accounts of users who directly interact with mixing services. In a weekend statement, Swan, an accumulation platform exclusively for Bitcoin, issued a warning to users cautioning them that their accounts may face termination due to increased scrutiny from banks and custodians.
Swan emphasized that its banking and custodial partners will no longer service clients who directly interact with bitcoin mixing services such as Wasabi, Samourai, and similar platforms. The warning also stated that users who deposit or withdraw funds directly to or from crypto mixing services risk having their accounts terminated by Swan’s financial partners.
Despite opposing the proposed rules, Swan acknowledged that its financial institution partners have taken a stance against mixers due to the pressure exerted by Swan Bitcoin’s banking partners, in response to a recent introduction of a proposed rule by the Financial Crimes Enforcement Network (FinCEN). The proposed rule aims to impose new responsibilities on institutions that facilitate transactions involving mixing services.
The Challenges Faced by Swan Bitcoin
Yan Pritzker, co-founder and CTO of Swan Bitcoin, explained that while the company supports coin mixing as a privacy service, it is necessary to connect with qualified custodians and banks for on-ramping customers with fiat. Pritzker expressed that the fear prevailing in the banking sector has made most banks reluctant to engage with anything related to cryptocurrency. He also highlighted the challenge of processing USD in the United States without involving a bank or Money Services Business, mentioning that all financial institutions are subject to rules and guidelines from FinCEN, the Financial Action Task Force, and other unelected bodies.
FinCEN’s Proposed Regulatory Measures
At the end of October, the U.S. Treasury’s FinCEN proposed regulatory measures to bring convertible virtual currencies (CVCs) under existing anti-money laundering regulations. If implemented, these rules would categorize the mixing of convertible virtual currencies as a “primary money laundering concern,” affecting services like Tornado Cash and other providers that use basic privacy protocols.
FinCEN’s proposal is a response to concerns about malicious actors exploiting crypto-mixing services for money laundering. The organization specifically mentioned groups like Hamas, Russian criminal organizations, and the Democratic People’s Republic of Korea as examples, emphasizing recent incidents involving these groups as a motivation for increased transparency and compliance measures.
Under the proposed rules, financial institutions would be required to maintain records and reports related to transactions involving digital asset tumblers. This means that operators of crypto tumblers would need to comply with know-your-customer (KYC), anti-money laundering (AML), and combating the financing of terrorism (CFT) requirements.
FinCEN Director Andrea Gacki highlighted the critical role of mixing services in facilitating illegal activities, stating that they enable ransomware, rogue state actors, and other criminals to fund unlawful activities and obscure the flow of illicit gains.
In a recent development, a federal judge sided with the U.S. Treasury in a lawsuit filed by Coin Center and other crypto industry advocates against the Department’s sanctions on Tornado Cash, a cryptocurrency mixing service. The plaintiffs argued that the Treasury exceeded its authority by imposing sanctions on Tornado Cash, which they claimed was merely a piece of computer code. However, the court dismissed this perspective, affirming that under the International Emergency Economic Powers Act (IEEPA), the Treasury has the authority to sanction any entity involving foreign interests.
