FinCEN’s Proposed Rule: Industry Responses and Concerns Exploring Industry Feedback on FinCEN’s Proposed Rule for Crypto Mixers

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By Ronald Tech

In a move that shook the crypto world, the Financial Crimes Enforcement Network (FinCEN) proposed stringent regulations for crypto mixing services, labeling them as potential money laundering threats. The suggested rule has elicited a variety of impassioned responses from industry players, painting a complex landscape for the future of crypto privacy tools.

Welcome to State of Crypto, where we unravel the intricate interactions between cryptocurrency and government.

The Proposal Unveiled

Back in October, FinCEN released a notice of proposed rulemaking, hinting at the possibility of classifying crypto mixers as primary money laundering concerns. The agency sought public feedback through a comment period, which recently concluded.

Impact and Controversy

Crypto mixers, which allow users to conceal the source of funds during transactions, have stoked significant debate within the U.S. national security realm. The concern mainly revolves around potential exploitation by malicious actors to launder funds from hacks or support nefarious organizations. This apprehension led the U.S. Office of Foreign Assets Control (OFAC) to blacklist several mixers, with its sanctions against Tornado Cash triggering legal tussles.

Stirring Industry Responses

The feedback pool encompassed approximately 2,000 comments, signifying the magnitude of industry involvement. Notable respondents ranged from privacy-focused wallet providers and industry lobbyists to decentralized finance projects and crypto analytics firms. The cryptocurrency analytics company, Chainalysis, criticized the proposals, labeling them as overly broad and likely to generate excessive reporting on transactions, with minimal ties to illicit activity.

FinCEN’s proposed rule has set off a wave of objections from various quarters

Divisive Perspectives

The outpouring of responses conveyed apprehensions that the rule might infringe upon personal freedoms, inadvertently drive legitimate crypto activities offshore, and engross a more comprehensive spectrum of the crypto ecosystem than FinCEN’s intent.

Furthermore, various commenters warned about the potential consequences of the regulation, emphasizing the likelihood of shifting crypto activities to less regulated jurisdictions, ultimately swaying U.S. regulatory efforts.

Constructive Criticism

The Blockchain Association’s letter spotlighted the risk of overbearing anti-money laundering requirements compelling digital asset businesses to relocate to less regulated nations, thereby impeding U.S. law enforcement’s access to critical information.

Similarly, America’s Credit Unions, although not directly involved in crypto transactions, voiced concerns about the proposed recordkeeping requirements being overly burdensome, advocating for a nuanced approach to the application of reporting and recordkeeping rules, considering the intricate nature of crypto mixing.

Varied Sentiments and Diverse Approaches

While some comments resonated with opposition to the proposed rule, a minority expressed support. GeoComply, a data analytics firm, commended the rule as an essential first step, while underscoring areas for potential enhancement, such as caution against reliance on IP data.

Even international perspectives unfolded, with the Bangladesh Financial Intelligence Unit offering cautious validation of the proposal, albeit with reservations about its potential heavy-handedness.

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Curious Revelations and Unintended Quirks

Intriguingly, amid the deluge of comments, suspicions arose about submissions possibly generated by automated bots. These submissions, urging reevaluation of specific aspects, inadvertently underscored the complexities and nuances of the crypto mixing domain, a conundrum that even the most sophisticated algorithms struggle to navigate.

Concerns about potential unintended consequences cast a broader shadow on the implications of the proposed rule, exemplifying the intricate tightrope that regulatory authorities must tread in their quest to balance control and innovation in the ever-evolving crypto landscape.

I asked the Treasury Department about the evaluation of these anomaly-riddled comments, raising doubts about their authenticity, and received the assurance that FinCEN meticulously reviews all public feedback, valuing each pertinent perspective in accordance with pertinent regulations.



Investors Voice Privacy Concerns in Response to Crypto Regulatory Proposals

Investors Voice Privacy Concerns in Response to Crypto Regulatory Proposals

A public comment period opened earlier this month for recent proposals from FinCEN. These proposals are centered around the attempt to regulate how cryptocurrency transactions are reported. Although cryptocurrency activities typically boast transparency as a virtue, not all market participants are in favor of such measures. During the comment period, vocal investors have raised concerns about privacy and the right to transact without undue scrutiny. Several submissions have also veered off-topic, including remarks expressing support for controversial figures like Richard Heart of Hex.

FinCEN will now be tasked with reviewing the comments before any decisions are made regarding whether to finalize, revise, or take alternative action on the proposed regulations.

Upcoming Events

  • 9:00 UTC (10:00 CEST) The European Banking Authority will hold a hearing on prudential regulation details within the Markets in Crypto Asset regulatory framework.

Wider Financial Landscape

  • (The New York Times) The Times recently published a concerning story about the use of click farms, highlighting AI as a tool of choice for these operations.
  • (The Air Current) TAC’s Jon Ostrower detailed the timeline for the Boeing 737 MAX 9 fuselage incident, where a door plug was lost mid-flight.
  • (Fortune) Fortune’s Leo Schwartz delved into the legal battle between Caitlin Long’s Custodia and the Federal Reserve over the rejection of the crypto bank’s bid for a bank charter.

If you have any thoughts on topics to discuss in the next week, or any feedback you’d like to share, feel free to email me at nik@coindesk.com or connect with me on Twitter @nikhileshde.

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Until next week, take care!