US Treasury Department Moves to Categorize All Crypto Mixers as National Security Threat
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The Financial Crimes Enforcement Network (FinCEN), under the purview of the US Treasury Department, is currently beating the war drums on cryptocurrency mixing platforms. FinCEN is now proposing that all platforms that aid the anonymous moving of digital currencies should be labeled a national security threat.
Notice of Proposed Rulemaking (NPRM)
The ongoing aggression in the Gaza Strip is bringing US legislators back to their calls for a more regulated crypto landscape.
In an October 19 release by FinCEN, the US Treasury Department proposed that all cryptocurrency mixers (labeled convertible virtual currency mixing) should be designated as a threat to national security.
In the official release on the US Treasury Department website, the agency stated that these convertible virtual currency mixing (CVC mixing) services were the preferred tools of bad actors when they intended to launder illicit funds.
Hence, the notice of proposed rulemaking (NPRM) would categorize all these privately-run financial tools as highly risky for continued use by individuals.
FinCEN says that crypto mixing is of primary money laundering concern, yet it also admits that there are legitimate reasons to mix.
Given this admission, why doesn't it set a threshold, say $5k, below which mixing is exempt, rather than declaring all mixing to be of concern? pic.twitter.com/p2AbaMuhJ8
— John Paul Koning (@jp_koning) October 20, 2023
Giving the reason behind the NPRM solicitation, the US Treasury Department noted that this proposed ruling would promote transparency around CVC mixing services in a bid to tackle its use by malicious actors.
CVC mixing services are blockchain-oriented services that allow users to transfer value anonymously. The tool works by mixing original transactions with bogus transactions, making it difficult to identify the original one.
In these instances, only the sender and recipient are privy to what value is transferred and how much is being received. The tool has become a favorite mechanism for illicit actors like the North Korea-linked Lazarus Group whenever they hack into blockchain platforms and steal funds.
Speaking on the NPRM solicitation, Deputy Secretary of the US Treasury Wally Adeyemo stated that the US government is broadly combatting the use of CVC mixing services by terrorist groups like Hamas to pursue their vindictive agendas.
Meanwhile, Hamas and the Palestinian Islamic Jihad groups have turned to these crypto-mixing services to get needed funds for their terror attacks following US sanctions.
According to an official letter sent by Massachusetts Senator Elizabeth Warren and 102 of her colleagues, the Hamas and PIJ groups were able to cull $130 million in cryptocurrencies from willing donors between August 2021 and June 2023.
Moreover, the PIJ group was able to move $12 million in crypto to another Islamist group called Hezbollah in 2023. These digital funds were then used to finance terror attacks on the Israeli population.
More Surveillance on Crypto Firms Both Within and Outside the US
While the idea is debated, its approval could spell a new dimension in crypto use and decentralized value transfer. If the NPRM is accepted and passed into law, all cryptocurrency trading platforms would be required to report all transactions executed on its platform and anyone it considers suspicious to the US government.
In keeping with its position as the world’s policing force, this would apply to all crypto exchanges both within and outside the territory of the US. The policy is currently set for public comments for the next three months.
Meanwhile, this is not the first time the US government has come down hard on crypto mixing services. In an August 8, 2022 release, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a blacklisting of the then popular crypto-mixing service Tornado Cash.
In it, OFAC stated that Tornado Cash, which operated atop the Ethereum network, was used to launder a whopping $7 billion in virtual currencies since its launch in 2019.
However, crypto and blockchain advocates state that this new focus of the US government is painting a bad picture of how blockchain-backed technology works. Some, like the Coinbase exchange, have tried to apply legal means to checkmate this narrative, but their oppositions have been overturned.
