By Michael B. Cohen
Vice President of Global Operations
MyChargeBack
The U.S. Treasury Department has issued a proposal to designate certain cryptocurrency mixing services as “money laundering concerns” under the Bank Secrecy Act. This would allow the government to impose sanctions on these entities and prohibit U.S. persons from engaging in transactions with them.
Cryptocurrency mixers, also known as tumblers, are services that allow users to obfuscate the origin and destination of their digital assets by pooling them with other users’ funds and sending them to new addresses. The aim is to enhance the privacy and anonymity of cryptocurrency transactions, which are otherwise traceable on public blockchains.
However, the Treasury Department argues that these services pose a significant threat to the integrity and security of the U.S. financial system, as they can facilitate money laundering, terrorism financing, tax evasion, and other illicit activities. The proposal cites several examples of mixers being used by criminals, such as the AlphaBay darknet market, which laundered over $1 billion worth of cryptocurrencies before being shut down by law enforcement in 2017.
The proposal also acknowledges that some mixers may have legitimate uses, such as protecting users from identity theft, censorship, or discrimination. The proposal does not intend to target these mixers, but rather those that operate with a high degree of anonymity and disregard for compliance with anti-money laundering and counter-terrorism financing regulations. The proposal cites some examples of legal mixers, such as CoinJoin, which requires users to sign a message proving their ownership of the funds, or Zcash, which uses zero-knowledge proofs to verify transactions without revealing any information about them.
The proposal would apply to any person or entity that provides mixing services for cryptocurrencies that are subject to U.S. jurisdiction, or that operate in or facilitate transactions involving U.S. persons or businesses. The Treasury Department would identify these entities as “money laundering concerns” and impose sanctions on them, such as freezing their assets, blocking their access to the U.S. financial system, and prohibiting U.S. persons from doing business with them.
The proposal is open for public comment until November 25, 2023. The Treasury Department invites feedback from stakeholders, including cryptocurrency users, service providers, regulators, and law enforcement agencies. The initiative is part of the Treasury Department’s broader efforts to combat illicit finance involving cryptocurrencies and enhance transparency and accountability in the digital asset space.
