The Financial Crimes Enforcement Network (FinCEN) has released an analysis that reports an alleged increase in the use of cryptocurrency in human trafficking cases. According to FinCEN, reports of cryptocurrency linked to these purposes grew from 336 in 2020 to 1,975 in 2021, an increase of almost 500%. FinCEN Alerts of Crypto Usage Linked to […]
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Samourai Wallet, Strike and Others Ask FinCEN to Withdraw Proposed Rules Tied to Crypto Mixing
Samourai Wallet, River, Strike, Swan, and other companies in the cryptocurrency space have sent a letter to the Financial Crimes Enforcement Network (FinCEN), commenting on the proposed rules over mixing transactions introduced in October. These companies are asking FinCEN to withdraw its proposal because it considers it inadequate for many reasons, criticizing it for being “overbroad” and including lawful activities under its scope.
Samourai Wallet Blasts FinCEN Cryptocurrency Mixing Proposed Requirements
A group of 26 companies linked to the cryptocurrency industry have sent a letter to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury, commenting on the validity of the rules the institution has proposed to apply for cryptocurrency mixing transactions in October.
The letter, produced by Samourai Wallet and Ten31 and co-signed by River, Strike, Ronindojo, Swan Bitcoin, Primal, GRIID, Zaprite, Peach, Mempool Space, Upstream Data, Stakwork, Vida Global, Voltage, Coinkite, Mutiny Wallet, Standard Bitcoin Company, Satoshi Energy, Cathedra Bitcoin, Anchorwatch, Bitnob, Oshi, Battery Finance, Fold, and Start9 asks FinCEN to withdraw the rules proposed based on several reasons, calling them overbroad and telling these would interfere with valid security practices for blockchain networks.
The co-signers of the letter state that the application of these rules would “overly burden our use of such technologies in ways that would not assist FinCEN in achieving its mandate of preventing money laundering and other illicit use of money.”
The letter also comments that the proposed rules classify the practices considered by most industry actors to be lawful as mixing, encumbering the use of these measures for privacy-related objectives. In this regard, the co-signers state:
Employing these techniques to safeguard valuable digital assets is as routine and mundane and free of illicit purpose as using two-factor authentication to secure a digital wallet.
Furthermore, it argues that FinCEN does not need to impose more reporting duties on companies already reporting flagged or suspicious transactions, with this data being available on public blockchains for the institution. “Covered financial institutions should not have to become de facto law enforcement officers to make investigations easier for FinCEN,” it concludes.
What do you think about Samourai Wallet’s take on the proposal of rulemaking for cryptocurrency mixing transactions? Tell us in the comments section below.
FinCEN Targets Crypto Mixers Over Laundering and National Security Concerns
The U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, this week proposed regulations aimed at increasing transparency around crypto mixing services. These services, the agency says, are used by terrorist organizations and state actors to obscure financial transactions. FinCEN refers to these services as “Convertible Virtual Currency Mixing” or CVC mixing.
U.S. Treasury Takes Aim at Crypto Mixers, Citing National Security Risks
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 Coinjoin 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, the 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 5 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.
Coinjoin 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.”
What do you think about FinCEN’s action against crypto mixers? Share your thoughts and opinions about this subject in the comments section below.
FinCEN Self Hosted Wallet Proposal Draws Fire From Crypto Exchanges
The CEO and Co-founder of Coinbase, Brian Armstrong, was the first to mention rumors of a clampdown on self-hosted crypto wallets.
For those who don’t know – self-hosted crypto wallets (also known as non-custodial wallets or self-custody wallets) are a type of software that lets individuals store and use their own cryptocurrency, instead of needing to rely on a third party financial institution.
— Brian Armstrong (@brian_armstrong) November 25, 2020
That was almost a month ago. But things got real last week when the U.S. Financial Crimes Enforcement Network (FinCEN) announced a proposal requiring banks and money service businesses to track “unhosted wallets.”
“… submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (“CVC”) or digital assets with legal tender status (“legal tender digital assets” or “LTDA”) held in unhosted wallets (as defined below), or held in wallets hosted in a jurisdiction identified by FinCEN.”
Armstrong had opposed the plans from the start. He cited numerous reasons, including the importance of financial privacy and inclusion. But most predominant of all, from an industry standpoint, is that such plans would kill emerging use cases for crypto.
Fighting the FinCEN proposal on the grounds of how it will stifle the crypto industry is one thing. However, the timing of the proposal and the short public consultation period are drawing further complaints.
Further Issues Emerge With FinCEN’s Crypto Proposal
In a letter to FinCEN Director Kenneth A. Blanco, Paul Grewal, the Chief Legal Officer at Coinbase, points out that FinCEN has allotted only 15 days of public consultation.
Normally, FinCEN allows a 60 day public consultation period. However, considering this proposal’s wide-reaching effects, Grewal states the public needs more time to comment.
“FinCEN asked the public to provide comments in just 15 days, spanning Christmas Eve, Christmas Day, New Year’s Eve, and New Year’s Day, in the middle of a global pandemic — leaving just a handful of actual working days for comments.”
Kraken, the San Francisco-based crypto exchange, also joined in on the debate. In a blog post, Kraken wasn’t as diplomatic as Coinbase in response to the proposal.
They accused FinCEN of underhand tactics in the implementation of this ruling.
“FinCEN is trying to sneak the rule into law over the holiday season, giving the public only 15 days to respond.
This is unprecedented, and patently inappropriate for such a dramatic departure from existing law.”
What’s more, Kraken also attacks the proposal on the grounds of financial exclusion of society’s most vulnerable. They say the proposal would effectively “wall off the poor from our financial system forever.”
“Twenty-five percent of the U.S. population is currently unbanked or underbanked. Sadly, existing requirements do indeed prohibit financial institutions from opening accounts for homeless people, refugees and others in this 25% who do not have enough money to afford a mailing address.”
FinCEN argues that these steps are necessary to fight money laundering and global terrorist funding.
However, we are reminded that the FinCEN leak showed FinCEN seemingly had knowledge of the several big banks laundering money.
With that in mind, it’s hard to argue that FinCEN’s priorities do indeed lie with fighting financial crime.
Mnuchin: FinCEN to Roll Out ‘Significant’ New Cryptocurrency Rules
The post Mnuchin: FinCEN to Roll Out ‘Significant’ New Cryptocurrency Rules appeared first on DCEBrief.
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