Coinbase Slams US Treasury’s Proposed Requirement for Crypto Platforms to Report All Mixing Activities
Why Trust Cryptonews
Coinbase has criticized the US Treasury’s proposed rulemaking on cryptocurrency mixing, stating that it fails to effectively address regulatory gaps while placing unnecessary burdens on crypto platforms.
In a comment submitted to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Coinbase argued that regulated platforms already comply with recordkeeping and reporting rules for suspicious activities and illicit crypto mixing.
The proposed requirement for crypto platforms to report all crypto mixing activities, even those with legitimate purposes, was deemed inefficient by Coinbase.
The company expressed concerns about the excessive utilization of resources by such reporting.
Coinbase’s comment also highlighted the absence of a monetary threshold for recordkeeping and reporting, asserting that this approach would result in the bulk reporting of non-suspicious transactions.
Treasury Needs a More Targeted Approach
In a post on X (formerly Twitter), Paul Grewal, Chief Legal Officer of Coinbase, emphasized the need for a more targeted approach, stating that a data dump without a monetary threshold would be a waste of time and resources.
“If Treasury wants to focus on this issue, they should help Exchanges meet their existing obligations to report suspicious activity involving mixing,” Grewal said.
He suggested that specific guidance would be more effective than mandatory bulk reporting rules, as has been done in other areas by the Treasury.
If a new rule is required, at least: A/ add a money threshold to minimize the unhelpful information reported and mitigate the heavy burden this poses on exchanges; B/ make the rule a recordkeeping – not reporting – requirement; and C/ provide an extended implementation period.…
— paulgrewal.eth (@iampaulgrewal) January 22, 2024
The proposed rulemaking by FinCEN, announced in October, aims to enhance transparency surrounding crypto mixing activities.
While acknowledging that crypto mixing can be used for legitimate and innovative purposes, FinCEN expressed concerns about its potential use for money laundering by illicit actors, including North Korean hackers and Russia-based ransomware attackers.
To address the issues raised, Coinbase proposed that FinCEN introduce a threshold to eliminate the bulk reporting of small transactions.
Additionally, Coinbase recommended focusing on recordkeeping instead of reporting to mitigate privacy and security risks associated with mandatory reporting.
FinCEN’s Mixing Rulemaking Could Impact Bitcoin’s CoinJoin Services
If FinCEN’s new rules are implemented, they would classify the mixing of convertible virtual currencies as a “primary money laundering concern,” affecting both dedicated tumblers like Tornado Cash and service providers utilizing basic privacy protocols.
FinCEN’s proposal comes amid increasing concern that malicious actors are exploiting crypto-mixing services to launder illicit funds.
The proposed rules would require financial institutions to maintain records and reports related to transactions involving digital asset tumblers.
Essentially, this means that operators of crypto tumblers would be subject to know-your-customer (KYC), anti-money laundering (AML), and combating the financing of terrorism (CFT) requirements.
FinCEN’s rulemaking is grounded in Section 311 of the USA Patriot Act, which empowers the Treasury Secretary to identify and take special measures against entities classified as “primary money laundering concerns.”
These measures could include prohibiting correspondent or payable-through accounts, verifying the purpose and source of funds for payments, imposing recordkeeping and reporting requirements, and mandating beneficial ownership disclosures.
It is worth noting that Tornado Cash was sanctioned by the Office of Foreign Asset Control (OFAC) in August last year.
