Crypto Industry's Reaction to FinCEN's Proposed Mixer Rule

Jonathan Stoker Jan 30, 2024, 16:20pm 143 views

Crypto Industry's Reaction to FinCEN's Proposed Mixer Rule

New Regulatory Measures Proposed for Crypto Mixing Services

In October, the Financial Crimes Enforcement Network (FinCEN) put forth a new regulatory proposal for crypto mixing services. It proposed that these privacy tools be treated as potential threats for money laundering, pushing for new record-keeping rules for U.S. individuals or entities using them. The proposal was open to industry feedback, and this article summarises the key concerns and perspectives shared.

Focus on Crypto Mixers

Crypto mixers, which allow users to conceal the origin or source of their funds, have been a point of controversy in U.S. national security circles. This is due to fears that they may be utilized by malicious actors for laundering funds or supporting terrorist organizations. To counter this, OFAC, the U.S. sanctions watchdog, has added several mixers to a global blacklist in an attempt to exclude these entities from the global financial system. Sanctions against Tornado Cash have sparked legal disputes.

Reaction to the Proposal

As of the time of writing, approximately 2,000 comments had been posted in response to the proposal. Respondents included privacy-focused wallet providers, industry lobbyists, analytics firms, and decentralized finance projects. Concerns were raised that the rule could infringe personal rights, inadvertently capture a larger section of the crypto ecosystem than intended, and drive legitimate crypto use offshore.

Overreach and Consequences

Several respondents suggested that the proposals were too broad to be effective and would result in excessive reporting on transactions, most of which have no ties to illicit activity. They warned that common economic activities, like liquidity pools or swaps, might be mistakenly targeted by the proposal's section addressing the exchange of different types of digital assets.

Potential Shift to Less Regulated Jurisdictions

Some feedback indicated that the implementation of FinCEN's rule might push activity to other jurisdictions, potentially leading to a backfire for the U.S. regulator. This could result in digital asset businesses moving to less regulated countries, where there would be no requirement to file suspicious activity reports to FinCEN, hence limiting U.S. law enforcement's access to important information.

Burdensome Recordkeeping Requirements

A comment from America's Credit Unions, a new entity formed after the merger of the Credit Union National Association and the National Association of Federally-Insured Credit Unions, voiced the concern that the proposed recordkeeping requirements could be potentially burdensome. Additionally, they advised that these rules should not be a duplicate of existing ones.

Support for the Rule

Although the majority of comments expressed concerns about the proposal, some showed support for the rule. GeoComply, a data analytics firm, called the rule an effective first step but suggested areas that could be strengthened. On the other hand, the Bangladesh Financial Intelligence Unit supported the proposal but suggested it might be too excessive.

Next Steps

FinCEN will now review all the feedback before determining the next action. Options include finalizing the proposal, revising it, or pursuing a different course of action.

Edited by Jonathan Stoker

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