Tuesday, June 25, 2024
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HomeDigital AssetsUS Treasury official clarifies stance on crypto mixing services
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US Treasury official clarifies stance on crypto mixing services

The regulation would be the agency’s first use of its authority under Section 311 of the Patriot Act to target a specific class of transactions.

However, the U.S. Department of the Treasury is not seeking to ban cryptocurrency mixers, according to Brian Nelson, the Treasury’s Under Secretary for Terrorism and Financial Intelligence. 

Speaking at CoinDesk’s annual Consensus conference in Austin, Nelson addressed concerns about FinCEN’s 2023 proposal, which also mandates virtual asset service providers (VASPs) to report transactions involving mixers.

CVC mixing involves facilitating virtual currency transactions in a way that hides the source, destination, or amount of the transactions, according to the agency. 

The lack of transparency surrounding crypto mixers poses money laundering and security risks, with illicit actors such as Hamas, the Palestinian Islamic Jihad, and North Korea involved in the activity, according to FinCEN. The proposed rule would require covered financial institutions, including banks, to report any transactions they know, suspect, or have reason to suspect involving CVC mixing.

The crypto industry interpreted FinCEN’s proposal and the U.S. Department of Justice’s enforcement actions against mixing services like Tornado Cash and Samourai Wallet as steps toward a blanket ban on crypto mixers. Nelson, however, firmly denied this interpretation.

“At the end of the day, this [proposal] is not a ban on mixers,” Nelson stated. “This is a proposed rule designed to drive transparency.”

Nelson added that he understands crypto users’ desire for financial privacy but highlighted the need to balance privacy with preventing terrorist financing. He stressed the Treasury’s intent to collaborate with the crypto industry to improve privacy without facilitating illicit activities.

“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 evade anti-money laundering (AML) and know-your-customer (KYC) regulations, which can attract bad actors, including North Korea.

“It’s not that everybody needs to know who you’re transacting with,” Nelson explained, “just that people and VASPs alike need to know they’re not ‘unwittingly’ funding Hamas or North Korea’s weapons program.”

Industry experts weigh on

Commenting on this, Mark Smargon, CEO of Fuse, said: “Public blockchains are using transparency to create trust between parties but this feature makes them less practice in the real world. Mainstream adoption of crypto tech will require new privacy tools like ZK and work with regulators to make sure businesses can use this tech without going to jail.”

Eskil Tsu, Co-founder of GoPlus, added “As the space matures, increased transparency is crucial for the industry’s growth and security. While we support efforts to prevent misuse of crypto mixers for illicit activities, it’s vital to balance this with the need for user privacy. Collaboration with regulators to develop censorship free solutions that enhance privacy without enabling bad actors is key. GoPlus is building a Web3 User Security Network that prioritizes transparency and user empowerment by providing permissionless security data and an end-user service environment.”

Iva Wisher, Co-founder & COO of Prom, also noted: “Although institutional impact on crypto is often regarded as hampering, it’s quite evident that at this scale, clean-cut frameworks are sometimes necessary for both parties. Brian Nelson’s latest commentary on crypto mixers signifies a balanced approach to a more transparent market and health of a broader financial system. Prom is a modular ZkEVM Layer 2 that enables interoperability across various chains, including both EVM and non-EVM compatible networks.”

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