- Leading crypto firms like Coinbase, Consensys, and Paradigm are pushing back against the US Treasury’s proposed rules that would require bulk reporting of crypto mixer transactions.
- They argue that the lack of specificity in the proposal and the need for reporting all mixer activities, even legitimate ones, could lead to inefficiency and resource waste.
Challenging the Proposed Rules
Coinbase, a prominent cryptocurrency exchange, expressed its reservations about the US Treasury’s proposed reporting requirements for crypto mixer transactions. In a comment to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Coinbase emphasized that regulated platforms already adhere to existing rules for recordkeeping and reporting of suspicious activities related to crypto mixing.
Inefficient Use of Resources
Coinbase particularly criticized the proposal’s insistence on reporting all crypto mixing activities, even those with legitimate purposes. The exchange argued that this broad approach would result in the inefficient allocation of resources and unnecessary bulk reporting of transactions that are not suspicious. Paul Grewal, Chief Legal Officer of Coinbase, stressed the need for more targeted measures to avoid counterproductive data dumping without monetary thresholds.
We filed comments today on @USTreasury’s proposed rule on crypto mixing. @coinbase supports effective regulations, but not bulk data collection and reporting requirements for all transactions involving any crypto mixing–even with no indication of suspicious activity. 1/6
— paulgrewal.eth (@iampaulgrewal) January 22, 2024
Seeking a Balanced Approach
Coinbase suggested that instead of imposing mandatory bulk reporting, FinCEN should provide specific guidance to help exchanges fulfill their existing obligations to report suspicious activities involving mixing. This approach aims to strike a balance between regulatory oversight and efficient resource utilization.
Concerns Over Privacy and Security
Other industry players, including Consensys and the Blockchain Association, expressed concerns about the broad definitions and interpretations in the proposal. They emphasized the need for a security solution that preserves user privacy while addressing money laundering concerns.
Today, @Consensys submitted a letter to FinCEN concerning its proposal to have regulated financial intermediaries surveil and report activity relating to crypto token mixers. TLDR: if this has to happen, then please make it narrow enough not to do real damage to the ecosystem… pic.twitter.com/0ESJyRQJaG
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) January 23, 2024
Today, @BlockchainAssn submitted comments to @FinCEN’s proposed convertible virtual currency mixing rule. The Proposal ignores legitimate uses of #mixers & would apply overly-broad requirements on users, driving #digitalassets to less regulated markets.
— Dan Spuller (@DanSpuller) January 22, 2024
The Background and Impact
FinCEN’s proposed rulemaking, announced in October, aims to increase transparency regarding crypto mixing activities. While recognizing the legitimate uses of crypto mixing, FinCEN is concerned about its potential for money laundering by illicit actors.
Impact on the Crypto Ecosystem
The proposed rules classify mixing of convertible virtual currencies as a “primary money laundering concern.” This affects not only dedicated tumblers but also service providers using basic privacy protocols. It imposes additional regulatory requirements on operators of these services.
Industry leaders, including Coinbase, Consensys, the Blockchain Association, Paradigm, and Coin Center, have responded critically to the proposed rules. They argue that the rules lack specificity, justification, and could have unintended consequences on the crypto ecosystem.
The pushback from prominent crypto firms underscores the ongoing debate surrounding crypto regulations and their potential impact on the industry’s development and privacy concerns.