Speaking at the annual CoinDesk Consensus conference in Austin, Brian Nelson – Treasury’s undersecretary for counterterrorism and financial intelligence – commented on the Financial Crimes Enforcement Agency’s (FinCEN) 2023 remarks about classifying mixers as a “primary money laundering concern” and attempting to require virtual asset service providers (VASPs) to report any cryptocurrency transactions involving mixing to the agency.
FinCEN’s proposal – along with a growing number of enforcement actions by the US Department of Justice against mixer services including Tornado Cash and Samourai Wallet – was seen by many in the industry as evidence of an impending attempt to ban cryptocurrency mixers entirely in the US, something Treasury strongly denies.
“At the end of the day, this [proposal] is not a ban on mixers,” Nelson said. “This is a proposed rule designed to drive transparency.”
Nelson said he was sympathetic to cryptocurrency users’ desire for financial privacy, but suggested that the industry and Treasury should work together to find ways to increase privacy without allowing terrorist financing.
“We believe that there is a difference between obfuscation and anonymity enhancing services that support privacy – we of course totally recognize that, in the context of public blockchains…that there would be a desire to have a certain degree of privacy,” Nelson said. “In that spirit, we want to work closely with industry to identify and collaborate on tools that can enhance privacy.”
Nelson said most of the mixers he sees are not actually designed to enhance privacy, but to circumvent anti-money laundering (AML) and know-your-customer (KYC) reporting requirements, making them “very attractive” to bad actors, including North Korea.
“It’s not that everybody needs to know who you’re transacting with,” Nelson said – just that people and VASPs alike need to know they’re not “unwittingly” funding Hamas or North Korea’s weapons program.
Fighting mixers in the US
In August 2022, OFAC imposed sanctions against Tornado Cash and from then on, US citizens and businesses were banned from using its service. In 2023, mixer creators Roman Storm and Roman Semenov were charged with conspiracy to violate sanctions and conspiracy to conduct an unlicensed money transfer business. Following this, developer Alexey Pertsev was arrested.
All of this looks like a war with windmills, as Semenov initially emphasized the decentralized nature of the platform, saying in a January 2022 interview with CoinDesk that the protocol was specifically designed to be “unstoppable,” and adding: “there’s not much we can do in terms of facilitating investigations because the team doesn’t have much control over the protocol.” Nevertheless, in May 2024, Pertsev was sentenced: he must serve a sentence of five years and four months for money laundering with Tornado Cash. This was despite the fact that Pertsev had nothing directly to do with the laundering as such.
In May 2024, the companies behind the wallets, zkSNACKs and ACINQ, announced they were suspending operations following actions taken by US authorities against similar cryptocurrency services.
Does Nelson’s announcement mean that the Treasury Department has finally realized the senselessness of their actions in an era of erasing digital boundaries and decentralization? Or is it just an excuse to continue their actions to “protect” US civilians from moves toward independence considered by their government as unwanted?
