In response to the increasing use of cryptocurrency mixers for illicit financial activities, the United States Treasury Department’s Financial Crime Enforcement Network (FinCEN), has proposed designating cryptocurrency mixing as an area of “primary money laundering concern”.
This comes after Hamas, the Palestinian militant group, used cryptocurrencies to finance recent attacks on Israel.
In an official notice dated October 19, FinCEN revealed its assessment that the percentage of convertible virtual currency (CVC) transactions processed by crypto mixers, which have origins from likely elicits sources, have increased
As a result, FinCEN has put forward a proposal requiring domestic financial institutions and agencies to implement specific recordkeeping and reporting requirements for transactions involving crypto mixers.
While FinCEN initially considered a narrower approach focusing on addressing terror financing linked to organizations like Hamas, ISIS, and North Korea, they determined that this approach would not be sufficient to tackle the broader risks posed by mixers.
In addition, Deputy Treasury Secretary Wally Adeyemo emphasized that the decision aims to combat the exploitation of digital assets by state-affiliated cyber criminals, and terrorist groups.
Deputy Treasury Secretary Wally Adeyemo stated the action aims to combat the exploitation of digital assets by “state-affiliated cyber actors, cybercriminals, and terrorist groups.” He cited Hamas and Palestinian Islamic Jihad’s illicit crypto financing following an October 7th attack on Israel and the October 17, bombing of a Gaza hospital.
This move by FinCEN follows concerns raised by U.S. lawmakers regarding the alleged financing of terrorist organisations through cryptocurrencies.
On October 17, over 100 members of Congress called on the Biden administration to take swift and decisive actions to curtail illicit crypto activity.
Notably, on Oct 18, Treasury officials added a Gaza-based crypto operator allegedly tied to Hamas to its list of Specially Designated Nationals.
In a related case, the Treasury’s Office of Foreign Asset Control had previously banned U.S residents from using Tornado Cash in August 2022 after adding several crypto addresses connected to the mixer to its list of Specially Designated Nationals.
This led to a legal challenge by 6 individuals supported by the cryptocurrency exchange, Coinbase. However, in August 2023, a federal judge ruled in favor of the Treasury Department, stating that it had operated within its legal authority.
FinCEN has also announced that members of the public will have a 90-day period to provide comments on the proposed crypto mixer regulation after its publication in the Federal Register
FinCEN will likely consider all feedback received before deciding whether to implement the crypto mixer regulations.
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