Prosecutions of Bitcoin Mixers Raise Crypto Privacy Questions
While some users claim mixers are a legitimate service that allow them to secure their financial privacy, mixers are also reportedly used by criminal enterprises to launder criminal proceeds, attracting regulatory scrutiny.
May 17, 2021 at 11:45 AM
8 minute read
Federal criminal charges filed on April 27, 2021 against the administrator of Bitcoin Fog, a cryptocurrency "mixer," raise questions regarding attempts to require anti-money laundering and "know your customer" regulations for crypto money transmitters, and whether there can be (or is) anonymity or privacy in the purchase or sale of cryptocurrencies.
Cryptocurrency mixers, also known as "tumblers," are not a new part of the cryptocurrency market. In fact, they arguably support the privacy and transactional anonymity that are part of cryptocurrency's appeal. A bitcoin mixer allows a bitcoin holder to send bitcoins to a service, which, in turn, pools and scrambles those bitcoins with other bitcoins in a manner that obscures the transaction history and makes it more difficult to identify the original source of the funds. (The transactions that are part of the bitcoin scramble technically remain visible on the blockchain, but become much harder to follow and trace.) While some users claim mixers are a legitimate service that allow them to secure their financial privacy, mixers are also reportedly used by criminal enterprises to launder criminal proceeds, attracting regulatory scrutiny.
The Financial Crimes Enforcement Network (FinCEN), the enforcement arm of the U.S. Department of Treasury, considers anyone that transmits a virtual currency that is not a party to the transaction to be a "money transmitter" for the purposes of regulation. Based on this framework, FinCEN defines cryptocurrency mixers as money transmitters, which subject mixers to FinCEN's anti-money laundering (AML), Bank Secrecy Act (BSA) know-your-customer (KYC) checks, and combating the financing of terrorism (CFT) program requirements that have long been applied to financial entities. A mixer's failure to register with FinCEN makes it an unlicensed money services business (MSB), subject to penalties that include significant fines or imprisonment. (FinCEN has separately made public statements that it does not consider any ICO registered as a securities or derivatives offering to be a transmission of money under their jurisdiction and defers to the U.S. Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) in this regard.)
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