Crypto firms Coinbase, Paradigm, and Consensys are urging the United States Treasury to revisit its proposed reporting requirements for transactions involving crypto mixers, arguing they lack specificity and would be a drain on resources.
On Jan. 22, Coinbase sent a letter in response to the U.S. Treasury Department’s Financial Crimes Enforcement Network’s (FinCEN) notice of proposed rulemaking that proposes “requiring domestic financial institutions to implement recordkeeping and reporting requirements on transactions involving convertible virtual currency mixing.”
The firm argued that the proposed requirements were overly broad, burdensome, and ineffective and gave two main reasons backing their argument.
Firstly, it argued that there is no “regulatory gap” when it comes to crypto mixers, as regulated entities like Coinbase already file Suspicious Activity Reports (SARs) on illicit crypto mixing activity above $2,000.
Secondly, the proposed rules would “lead to bulk reporting of data of little help to law enforcement,” invade privacy, and risk security by centralizing sensitive information since not all mixing activities are illicit, it stated before adding:
“This is not simply a misuse of VASPs’ [virtual asset service providers] finite compliance resources; it is exactly the kind of bulk reporting that Congress has explicitly discouraged.”
In a Jan. 22 thread on X, Coinbase’s chief legal officer Paul Grewal noted, “Congress has said that kind of data dump is a waste of time and resources. We agree.”
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
In October, FinCEN proposed recordkeeping and reporting rules designating cryptocurrency mixing as an area of “primary money laundering concern.”
FinCEN determined that the percentage of crypto transactions processed by mixers that originated from likely illicit sources was increasing. It proposed requiring domestic financial institutions and agencies to “implement certain recordkeeping and reporting requirements” for transactions involving crypto mixers.
Before finalizing any new rules, FinCEN should provide a detailed plan on how the crypto industry can implement the data collection, store it, and provide reports, it suggested.
The proposed rules are not yet finalized or approved and are still in a comment period subject to public input and revisions before FinCEN decides whether to formally approve and implement them.
Meanwhile, Coinbase was not alone in opposing the reporting requirements. In another letter dated Jan. 22, Ethereum software solutions provider Consensys submitted a letter to FinCEN, arguing that it should find a security solution that balances preserving privacy.
“If this has to happen, then please make it narrow enough not to do real damage to the ecosystem and its users,” it stated.
Today, @Consensys submitted a letter to FinCEN concerning its proposal to have regulated financial intermediaries surveil and report activity relating to crypto token mixers. TLDR: if this has to happen, then please make it narrow enough not to do real damage to the ecosystem… pic.twitter.com/0ESJyRQJaG
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) January 23, 2024
The Blockchain Association also submitted a response to FinCEN stating that “the proposal’s definition of ‘CVC mixing’ is FAR too broad and does not provide sufficient evidence backing up such a broad definition.”
Crypto venture capital firm Paradigm also filed a response arguing that the proposed rule “is not the appropriate tool to address the FinCEN’s stated concern,” while Coin Center stated that the rulemaking was “unprecedented and exceedingly broad” in their response.