The U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, proposed designating cryptocurrency mixing as an area of ”primary money laundering concern” following the Hamas attack on Israel.
In an Oct. 19 notice, FinCEN said it estimated that “the percentage of CVC (convertible virtual currency) transactions processed by CVC mixers that originated from likely illicit sources is increasing.” FinCEN proposed requiring domestic financial institutions and agencies to “implement certain.” record keeping and reporting requirements” for transactions involving crypto mixtures.
“FinCEN has considered issuing a rule under section 311 (of the USA Patriot Act) that would be narrowly targeted to address terrorist financing involving Hamas and ISIS and/or North Korea-sponsored and -affiliated actors,” the notice said. “However, FinCEN has determined that such a narrow approach would be insufficient to address the risks at issue.”
Treasury Undersecretary Wally Adeyemo reportedly said the addition of crypto mixers to US government-sanctioned entities is aimed at combating digital assets being exploited by “state-affiliated cyber actors, cybercriminals and terrorist groups.” He cited Hamas – the group responsible for the October 7 attack on Israel – and the Palestinian Islamic Jihad – the organization Israel blamed for an October 17 attack on a Gaza hospital – illegally using crypto.
The notice followed concerns expressed by US lawmakers surrounding terrorist organizations allegedly funded by crypto. On October 17, more than 100 members of Congress called on the administration of US President Joe Biden “to act quickly and categorically to significantly limit illegal crypto activity.” Treasury officials also added a Gaza-based crypto operator allegedly linked to Hamas to its list of Specially Designated Nationals on October 18.
Related: Advocacy groups push back against Sen. Warren linking crypto with terrorism
In August 2022, the Treasury’s Office of Foreign Assets Control effectively banned US residents from using Tornado Cash after adding several crypto addresses connected to the mixer to its list of Specially Designated Nationals. The department’s action prompted a lawsuit brought by six individuals backed by cryptocurrency exchange Coinbase. In August 2023, a federal judge ruled on summary judgment saying the Treasury Department acted within its authority.
According to FinCEN, members of the public will have 90 days to comment on the crypto mixer proposal after publication in the Federal Register. The government department is likely to review all comments before considering whether to implement the proposed crypto mix policy.
Magazine: Tornado Cash 2.0: The race to build safe and legal coin mixes