New Regulations Proposed by the US Department of Treasury to Tackle Money Laundering in Crypto Mixers

In a bold move to combat the escalating issue of money laundering through crypto mixers, the Financial Crimes Enforcement Network (FinCEN) of the United States Department of Treasury has proposed new regulations. This announcement comes as a response to the ineffectiveness of previous actions, such as the sanctioning of Tornado Cash, which only led to the emergence of numerous other crypto mixers worldwide.

US Takes Geopolitical Fights to the Crypto Market

Last year, the Office of Foreign Assets Control (OFAC) within the Department of Treasury sanctioned Tornado Cash for its alleged involvement in laundering more than $7 billion of illegal proceeds. However, the US government's attempts to exert control over software development in this space has faced staunch opposition from key players in the crypto industry, such as Coinbase Global Inc (NASDAQ: COIN) CEO Brian Armstrong.

Many crypto mixers are the result of open-source software development, much like how a road builder cannot be held accountable for reckless driving that causes fatal accidents. This viewpoint challenges the notion that controlling software development alone can effectively curb money laundering.

Nonetheless, the US government argues that terrorists have been utilizing crypto mixers to fund their operations, thereby exacerbating conflicts in regions such as Ukraine and Israel. The proposed regulations aim to classify international convertible virtual currency mixing as a security threat due to its facilitation of illegal activities and support for organizations like Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK).

"CVC mixing offers a critical service that allows players in the ransomware ecosystem, rogue state actors, and other criminals to fund their unlawful activities and obfuscate the flow of ill-gotten gains," commented FinCEN Director Andrea Gacki. This marks the first instance of FinCEN utilizing Section 311 authority to target a category of transactions deemed of primary concern for money laundering. The US Treasury is determined to identify and eliminate illicit use and abuse within the convertible virtual currency ecosystem, mirroring their efforts in the traditional financial system.

The United States has been a pivotal supporter of both Ukraine and Israel during their respective conflicts, providing financial aid and military assistance. Notably, Tether, a leading stablecoin company, recently collaborated with Israel’s National Bureau for Counter Terror Financing (NBCTF) to identify and freeze 32 addresses associated with approximately $873,000 linked to the Hamas group in Gaza.

Earlier this year, Israel's Defense Minister Yoav Gallant announced that the NBCTF successfully seized crypto assets totaling over $1.7 million, belonging to Lebanon's Hezbollah and Iran's Quds Force. The NBCTF worked closely with blockchain analytics and forensic firm Chainalysis to uncover and freeze these funds.