21-minute listen
Evan Abrams is an Associate at Steptoe & Johnson and advises clients on issues related to anti-money laundering and anti-corruption, among others. He came on the show to discuss FinCEN’s recent proposed rule targeting digital asset mixers. The proposed rule is part of an effort by the Department of Treasury to crackdown on cryptocurrency anonymity services such as digital asset mixers also known as convertible virtual currency (CVC) mixers, which can be used as a money laundering tool by rogue states, terrorist organizations, and criminals although there are legitimate uses of CVC mixers. The issuance of the proposed rule comes on the heels of the October 7 Hamas attack as the group has been accused of using digital asset mixers. You can get in touch with Evan at this link and a link to the related piece he co-authored on the Steptoe website is here.
Key Highlights:
05:04 – A breakdown of how illicit actors could exploit digital asset mixers.
Illicit actors, such as ransomware hackers, need a way to convert the digital assets they receive to government-issued currencies. This becomes a difficult task if one can attribute their digital assets as being the proceeds of ransomware. To avoid this, upon receiving the digital assets in their wallets, illicit actors can obfuscate the origin of the assets using a digital asset mixer that collects, pools, and then randomly shuffles cryptocurrencies deposited by many other users before redistributing the funds. This obfuscates the origins and the owners of the digital assets.
06:16 – The objectives of FinCEN’s proposed rule.
The proposed rule is seeking to impose record-keeping and recording obligations on US financial institutions for transactions that have a touchpoint with digital asset mixers. FinCEN sees CVC (convertible virtual currency) mixing transactions as a class of transactions of primary money laundering concern and as such seeks to mitigate the risk they pose by imposing those additional record keeping and recording requirements on US financial institutions.
11:28 – The difficulty posed by the rule’s broad definition of CVC mixers.
The proposed rule is considered to be overinclusive in that it defines CVC mixing so broadly that it could include most decentralized platforms, decentralized exchanges, decentralized lending protocols and other types of activities that could be occurring for legitimate purposes and may not be considered by most people to be a CVC mixer or a platform being used by bad actors.
17:01 – The Oct 7 Hamas attack’s impact on the proposed rule.
The proposed rule was issued on October 19 and followed the Hamas attack in Israel on October 7. The rule is believed to have been in the works for some time, but because Hamas is believed to have used digital asset mixers in the past to launder money, the attack is believed to have added some urgency to the issuance of the proposed rule based on some FinCEN statements.
19:03 – The compliance burden of the proposed rule.
The proposed rule is going to be a challenge for companies to implement for several reasons whether it comes down to collecting the right information to then compiling the information that was collected to then submitting the reporting requirements. As a result of the potential compliance burden, some companies may decide to simply not accept deposits or withdrawals from their platform that go to CVC mixers. This point becomes even more of an issue because the rule defines CVC mixing so broadly that it would include a lot of decentralized exchanges.
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