With the global cryptocurrency market showing signs of recovery, the US government is turning its attention to convertible currency ("CVC") mixers as key drivers of global money laundering and terrorist financing. While CVC mixers can play a legitimate role, principally for clients seeking privacy when transacting on the public blockchain, they can also be used as automated money laundering machines: they can blend digital proceeds of crime with other virtual assets and traditional currency, creating a complex structure that obscures the source and ownership of funds.
Last month, the US Department of the Treasury’s Financial Crimes Enforcement Network, or FinCEN, released a notice of proposed rulemaking that designates CVC mixing as a primary money laundering concern. The proposal comes after last year's Office of Foreign Assets Control sanction of notorious mixers Blender.io and Tornado Cash, which since their founding had reportedly laundered more than $7 billion worth of virtual currency for organized crime and sanctioned state actors such as North Korea's Lazarus Group. The proposed rule, which would put more monitoring burden on the front end, would require US financial institutions to adopt recordkeeping and reporting measures to track transactions that involve CVC mixing.
In practical terms, such requirements would likely result in a period of increased suspicious activity reporting, followed by a general reduction in the use of CVCs as institutions seek to reduce their related compliance costs and enforcement risk. Either way, the proposed rule signals an intensifying enforcement focus on increasing transparency in crypto markets.
Just as with our efforts in the traditional financial system, Treasury will work to identify and root out the illicit use and abuse of the CVC ecosystem.
