Crypto Tumblers Face Stricter Regulations as FinCEN Proposes Rule
Introduction
In a significant development for the cryptocurrency industry, the Financial Crimes Enforcement Network (FinCEN) has put forth a proposal to classify the mixing of convertible virtual currencies as a primary concern for money laundering. This move is expected to have a profound impact on crypto tumblers, such as Tornado Cash, and privacy protocol users, like CoinJoin. The proposed rule aims to enhance transparency and enforce compliance practices by introducing Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter Terrorist Financing (CFT) requirements for operators of these services.
Background of the Proposed Rule
The proposed rule is justified under Section 311 of the USA Patriot Act, which grants the Treasury Secretary the authority to designate primary money laundering concerns and impose special measures against those entities. Unless FinCEN receives significant objections during the 90-day public comment period, these rules are likely to be enacted by Treasury Secretary Janet Yellen.
Potential Challenges for Users
The new regulations could potentially pose challenges for users seeking to utilize tumbling services like CoinJoin. Operators may be required to provide substantial data to the government, with the possible assistance of TRM Phoenix in this process.
Concerns and Objectives
This proposal comes against the backdrop of reports suggesting that entities like Hamas and the Palestinian Islamic Jihad have received millions of Tron-based USDT through these services. The aim of the proposed rule is also to restrict access to the US financial infrastructure by states like North Korea and terrorist groups.
Ongoing Operations of Tornado Cash
Despite being sanctioned by the Office of Foreign Assets Control (OFAC) in August 2022, Tornado Cash continues to operate. A recent Arkham report revealed that its contract facilitated the movement of $77 million in digital assets over a 30-day period.
A Regulatory-Compliant Alternative
In response to these developments, Ethereum creator Vitalik Buterin has proposed an alternative solution using Zero-Knowledge proofs (ZK proofs) that would be compliant with regulations. This alternative has the potential to balance the need for privacy in cryptocurrency transactions with the requirements of regulatory compliance.
This article offers valuable insights into the proposed rule by FinCEN and its potential impact on the crypto tumbling industry. It highlights the concerns and objectives behind these regulations and also presents an alternative approach suggested by Vitalik Buterin. Stay informed about the evolving landscape of cryptocurrency regulations.
