Key players in the cryptocurrency sector, including Coinbase, Paradigm, and Consensys, are challenging the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) over its proposed regulations concerning crypto mixers. These firms argue that the proposed rules are overly broad, lack specificity, and could strain resources.
On January 22, Coinbase responded to FinCEN’s notice of proposed rulemaking, which seeks to impose recordkeeping and reporting requirements on transactions involving crypto mixers. Coinbase contends that these requirements are unnecessarily burdensome and ineffective for several reasons:
No Regulatory Gap: Coinbase argues that there is no regulatory gap needing to be filled regarding crypto mixers, as entities like Coinbase already file suspicious activity reports (SARs) for illicit crypto mixing activities over $2,000.
Inefficient Data Reporting: The proposed rules could lead to excessive reporting of data that offers little benefit to law enforcement. This could also infringe on privacy and centralize sensitive information, raising security concerns.
Coinbase’s chief legal officer, Paul Grewal, emphasized on X (formerly Twitter) that such bulk data reporting is considered a waste of time and resources, a view shared by Congress.
In October 2023, FinCEN proposed these rules, identifying cryptocurrency mixing as a primary area of money laundering concern. The agency noted an increase in the percentage of crypto transactions processed by mixers originating from likely illicit sources.
Coinbase suggests that before finalizing any rules, FinCEN should provide a comprehensive plan detailing how the crypto industry can collect, store, and report the required data.
Coinbase is not alone in its opposition. Consensys, in its letter to FinCEN, urged for a solution that balances security with privacy preservation. The Blockchain Association criticized the proposal for its overly broad definition of ‘CVC mixing’ and lack of sufficient evidence. Paradigm argued that the proposed rule is not the right tool to address FinCEN’s concerns, while Coin Center described the rulemaking as unprecedented and exceedingly broad.
The proposed rules are still in the comment period, allowing for public input and potential revisions before FinCEN makes a decision on formal approval and implementation. The crypto industry’s feedback reflects concerns about regulatory overreach and the potential impact on innovation and privacy within the ecosystem.
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