Prominent crypto firms, including Coinbase, Paradigm and Consensys, have made strong arguments against the US Treasury Department’s proposals for reporting requirements on transactions involving cryptocurrency mixers.
In a letter sent on January 22 in response to the Financial Crimes Enforcement Network (FinCEN) proposal, Coinbase expressed concerns about the lack of specificity and resource burden that the proposed rules would entail.
The Coinbase position is based on two key arguments
First, they maintain that there is no “regulatory loophole” in relation to cryptocurrency mixers, as regulated entities like Coinbase already file suspicious activity reports (SARs) on illicit cryptocurrency mixing transactions over $2,000.
Second, Coinbase warns that the proposed rules would lead to “massive data reporting of little help to law enforcement,” invading privacy and risking security by centralizing sensitive information.
The company highlights that not only would this be a misuse of the limited compliance resources of virtual asset service providers (VASPs), but it also contradicts the stance of Congress, which has explicitly discouraged this type of mass reporting.
Paul Grewal, chief legal officer at Coinbase, emphasizes in a thread on the social network Coinbase agrees.
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
FinCEN ‘s proposal, introduced in October 2023, seeks to establish registration and reporting rules that designate cryptocurrency mixing as an area of ”primary money laundering concern.”
FinCEN noted the increase in cryptocurrency transactions processed by mixers came from likely illicit sources.
Coinbase, along with other companies like Consensys, the Blockchain Association, and Paradigm, is not alone in its opposition to the proposed reporting requirements.
Consensys suggests finding a security solution that balances privacy preservation, while the Blockchain Association argues that the definition of “virtual currency mixing” in the proposal is too broad and lacks sufficient evidence.
FinCEN‘s proposed rules have not yet been finalized or approved.
They are in a comment period subject to public input and revisions before FinCEN formally decides to approve and implement them.
This regulatory challenge highlights the tensions between the need to combat money laundering and preserve privacy and efficiency in the cryptocurrency industry.
The debate between the need for regulation and the preservation of fundamental crypto principles such as privacy and decentralization highlights the unique challenges the industry faces in its quest for widespread acceptance.
This confrontation is not only about specific rules, but about the very definition of the proper balance between financial security and digital freedom.
