The United States Financial Crimes Enforcement Network withdrew its finding that international convertible virtual currency mixing was a class of transactions of primary money-laundering concern. It also withdrew the related proposal for enhanced recordkeeping and reporting by covered financial institutions. The withdrawal took effect on 6 October, when the notice was published in the Federal Register.
FinCEN proposed the measure in October 2023 under Section 311 of the USA PATRIOT Act. It would have required institutions to report information about covered mixing transactions, including amounts, wallet addresses, transaction hashes and relevant customer details. The agency said the proposal was intended to help identify transactions that obscured the source, destination or amount of convertible virtual currency.
BROAD DEFINITIONS PROMPTED THE REVERSAL
FinCEN said commenters warned that the proposed definition of mixing was expansive enough to chill legitimate activity and impose substantial reporting burdens. The agency also cited the administration’s policy of supporting lawful users’ ability to transact privately on public blockchains. Independent cryptocurrency publications reported that industry and privacy advocates had opposed the proposal for several years.
The withdrawal removes the proposed special measure rather than creating a general exemption for transactions involving mixers. FinCEN said illicit actors continue to use mixing tools to hinder investigations. It will continue monitoring the activity for money laundering, terrorist financing and other illicit-finance indicators, and may take further action.
EXISTING COMPLIANCE DUTIES REMAIN
Banks and regulated digital-asset businesses will not have to implement the additional transaction-specific reports contemplated by the withdrawn proposal. Existing obligations under the Bank Secrecy Act, including risk-based monitoring and suspicious-activity reporting where applicable, remain separate from the abandoned measure. FinCEN also withdrew a distinct 2020 proposal covering certain transactions involving unhosted wallets.
The next development will be whether FinCEN replaces either proposal with narrower requirements or relies on existing supervisory and enforcement tools. Its notice left open the possibility of future steps if mixer activity presents illicit-finance risks. Financial institutions will therefore need to distinguish the cancelled reporting framework from their continuing obligations under current law.