US Treasury Proposes New Regulation Against Crypto Mixers as a Whole – The U.S. Department of the Treasury has maintained a critical stance toward crypto mixing services, often referred to as CVCs (Convertible Virtual Currency Mixing Services). While these services serve legitimate purposes, mainly sought after by privacy-conscious users who are willing to pay a fee to enhance their anonymity and avoid tracking through blockchain analysis tools, it is equally true that cybercriminals are utilizing them at an alarming frequency.
One of the most widely recognized of these mixing services is Tornado Cash, with its founders currently facing legal charges in a Manhattan court that could result in a potential 20-year prison sentence. Nonetheless, the Financial Crimes Enforcement Network (FinCEN) under the U.S. Treasury has shifted its focus towards categorically banning crypto mixers.
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As per a Notice of Proposed Rule Making (NPRM) recently issued by FinCEN, Convertible Virtual Currencies (CVCs) are proposed to be classified as a group of transactions posing a significant risk of money laundering. This decision stems from their investigations, including notable cases like the Bitzlato exchange takedown and the Axie Infinity Heist.
Andrea Gacki, the director of FinCEN, expressed that the proposed NPRM targeting crypto mixers represents the inaugural utilization of Section 311 Authority to address an entire category of transactions. Historically, Section 311 has been employed against singular entities like specific companies, banks, or nations, such as a private Andorran Bank, Bitzlato, Iran, and North Korea.
“CVC mixing offers a critical service that allows players in the ransomware ecosystem, rogue state actors, and other criminals to fund their unlawful activities and obfuscate the flow of ill-gotten gains. This is FinCEN’s first ever use of the Section 311 authority to target a class of transactions of primary money laundering concern, and, just as with our efforts in the traditional financial system, Treasury will work to identify and root out the illicit use and abuse of the CVC ecosystem.”
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Section 311, a relatively lesser-known component of the Patriot Act, grants the U.S. Department of the Treasury the authority to revoke banking privileges from specific accounts, foreign jurisdictions, institutions, or groups of transactions if their analysts determine them to be a “primary money laundering concern.” When Section 311 is invoked against any of these entities, it effectively isolates them from the international banking system, severely impeding their financial viability.