FinCEN Focuses on Crypto Mixers Due to Money Laundering and National Security Worries
In its latest update, FinCEN’s goal is to mandate financial institutions to report transactions involving international CVC mixing services, which the agency identifies as an “acute money laundering and national security risk.” Notable bitcoin (BTC) and Ethereum (ETH) mixing services using Coin join enable users to combine their transactions, thereby masking the origins and endpoints of funds.
Andrea Gacki, the director of FinCEN, remarked that virtual currency mixing services empower the “ransomware ecosystem, rogue state actors, and other criminals to fund their unlawful activities.” Deputy Treasury Secretary Wally Adeyemo emphasized the department’s dedication to thwarting crypto mixing utilization by terrorists, cybercriminals, and those evading sanctions.
Following the Treasury Department’s classifications of multiple cryptocurrency mixing services in the past year, such as Tornado Cash and Blender.io, new regulations were proposed. It’s alleged that these platforms aided in laundering millions from hacks linked to countries like North Korea.
The federal agency said that Tornado Cash “provided mixing services that obfuscated the movement of over $455 million stolen in March 2022 by the OFAC-designated, North Korea-controlled Lazarus Group in the largest known virtual currency heist to date.”
However, advocates of privacy assert that clampdowns on mixers negatively affect ordinary users dependent on them. Coin Center, a nonprofit emphasizing cryptocurrency policy matters, lodged a complaint against the Treasury Department concerning the Tornado Cash prohibition in October 2022, claiming it surpasses the Treasury’s statutory authority.
Coin join transactions conceal user identities by merging funds from varied origins. Such actions can maintain privacy without malicious intent. Nonetheless, FinCEN contends that these instruments are exploited by nefarious individuals.
Besides Tornado Cash and Blender.io, the Office of Foreign Assets Control, or OFAC, has been flagging a handful of crypto addresses tied to alleged wrongdoers. Some speculate that future proof-of-stake (PoS) validators and proof-of-work (PoW) miners will possess the capability to block transactions based on sanctioned individuals and addresses.
The Ethereum ecosystem has been cautious of OFAC-compliant blocks over the preceding two years, with 30% of Ethereum blocks currently complying with OFAC rules. Furthermore, in early May 2021, the bitcoin mining company Marathon produced the first OFAC-compliant block. However, this approach was subsequently abandoned by the mining firm.
FinCEN’s latest action follows a call to action led by Sen. Elizabeth Warren (D-MA) and supported by 100 other lawmakers. They’ve been pressing the Biden administration to tackle the issue of “crypto illicit finance risks.”
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