FinCEN Pulls Back Crypto-Mixing Reporting Plan After Public Pushback

The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) said Oct. 5 it is withdrawing a proposed recordkeeping and reporting rule aimed at crypto mixing—methods designed to obscure a transaction's source, destination or amount. FinCEN also rescinded its 2023 determination that international crypto mixing constitutes a class of transactions of "primary money laundering concern." The agency's withdrawal notice is slated for publication in the Federal Register on Oct. 6 and will take effect upon publication. FinCEN pointed to public comments warning that the proposal's broad definition could chill legitimate activity and create substantial reporting burdens. The plan extended beyond dedicated mixing services and would have required financial institutions to report covered transactions and related customer information, regardless of which protocol or service was used. Examples in the proposal included pooling funds, coordinating transactions through code, splitting transfers, routing funds through a chain of single-use wallets, swapping between crypto assets, and adding user-initiated delays. The reporting obligation would have applied to U.S. financial institutions that knew, suspected, or had reason to suspect a crypto transaction involved mixing outside the United States, where the transaction occurred by, through or to the institution and involved mixing in, or connected to, a jurisdiction outside the U.S. The definition carved out certain internal transaction processes at banks, broker-dealers and money services businesses that maintain source and destination records and provide them when legally required. Under the proposal, any privacy impact for wallet users would have come through institutional reporting. Reports could have included wallet addresses, transaction hashes, IP addresses and customer identity information already held by the institution. Institutions also would have been required to document compliance. FinCEN said its existing guidance remains in place: covered crypto money transmitters are still subject to registration requirements, risk-based anti-money laundering programs, applicable customer checks, recordkeeping and suspicious activity reporting. Qualifying transfers also remain subject to the Funds Travel Rule. The guidance draws a line between an anonymizing service that accepts and retransmits value and a provider of anonymizing software. Offering a tool alone does not make someone a money transmitter, though operating a transmission business can. FinCEN added that an unhosted-wallet user paying for goods or services on the user's own behalf is not a money transmitter on that basis. FinCEN's announcement also addresses a separate unhosted-wallet proposal published in December 2020. The Spring 2024 regulatory agenda had already listed that proposal as withdrawn as of April 12, 2024, and the new notice states FinCEN will take no further action on it. FinCEN said it will continue monitoring crypto mixing for money laundering, terrorist financing and other illicit activity and may take additional steps. Existing financial-institution obligations remain relevant when evaluating privacy-related transactions.