<\/p>\n
The US Treasury\u2019s Financial Crimes Enforcement Network recently published a proposal regarding the mixing of what they call \u201cconvertible virtual currencies\u201d or CVCs.<\/p>\n
Cryptocurrency transactions can be \u201cmixed\u201d via certain services in an effort to hide origins and quantities from any forms of surveillance.<\/p>\n
The proposal<\/a> is not a bill, the chief legal and policy officer at Polygon Labs Rebecca Rettig explains, but is a set of rules that the regulatory agency has proposed. The rules aim to curb money laundering and address the obfuscation of illicit flows of funds via crypto mixing mechanisms.<\/p>\n But the risks of such a proposal may outweigh the benefits, Rettig says. Now, she explains on the Empire podcast (Spotify<\/a>\/Apple<\/a>), the Treasury Department is \u201clooking for feedback.\u201d<\/p>\n \u201cThey will take in all the comments,\u201d she explains. \u201cThey\u2019ll have to take them into account. They have certain balancing factors, right? Benefits versus risks.\u201d<\/p>\n The rules ask US-based financial institutions and agencies \u201cto implement record-keeping and reporting requirements,\u201d Rettig says, relating to crypto transactions that involve mixing.\u00a0<\/p>\n \u201cOn its face,\u201d Rettig says, \u201cthat\u2019s not crazy, right?\u201d<\/p>\n But the real problem, Rettig says, is the breadth of the proposal\u2019s definition of \u201cmixing.\u201d As it stands, it could capture \u201call smart contract based applications, definitely DeFi<\/a> apps, but probably even ones that expand out from DeFi.\u201d<\/p>\n \u201cThat\u2019s really problematic,\u201d she says.<\/p>\n Jake Chervinsky, in his new role as chief legal officer at venture fund Variant, says the crypto industry faces a \u201cmacro challenge.\u201d\u00a0<\/p>\n \u201cRegulators want to identify the parties who are transacting. They want full insight and surveillance over the financial system.\u201d Crypto mixers, Chervinsky explains, are a tool that people can use for privacy, \u201cso that the government cannot surveil their transactions.\u201d<\/p>\n \u201cWhat we are seeing is sort of a full frontal assault from regulators, specifically anti-money laundering regulators,\u201d he says, to figure out \u201cwho are the people who are transacting\u201d and how to \u201ccircumvent this type of technology.\u201d<\/p>\n \u201cHow do they stop people from using them \u2014 to make them as low liquidity and as difficult for people to use to protect their privacy as possible?\u201d he asks. One answer is to criminalize technology, he explains, as demonstrated with sanctions against Tornado Cash.<\/p>\n Read more: <\/strong>Tornado Cash arrests spur privacy debate<\/a><\/p>\n Since the Patriot Act, which has been in effect for more than 20 years, Chervinsky says the Treasury department has been able to designate primary money laundering concerns. \u201cThey can designate an institution, a jurisdiction, a type of account \u2014 or a class of transactions.\u201d\u00a0<\/p>\n Chervinksy notes that the department has never designated a class of transactions before. \u201cThis is a novel action that the Treasury Department is taking one step further, going after crypto, than they\u2019ve ever done in any other type of context.\u201d\u00a0<\/p>\n \u201cWhat it says is, \u2018Hey, you regulated financial institutions, do you really want to touch these things?\u201d he says. \u201c\u2018Cause if you don\u2019t paint within the lines, you might get in trouble with us.\u2019\u201d<\/p>\n \u201cAnd that is really a signal to them to simply cut these things out. And that\u2019s, often, how the government works.\u201d\u00a0<\/p>\n Chervinsky explains that the definition of CVC mixing \u201cis way more broad than something like Tornado Cash or another privacy preserving protocol<\/a>. It includes basically anything in DeFi.\u201d<\/p>\n Rettig says \u201cthe industry needs to come together\u201d and respond to the proposal<\/a> with comments. FinCEN is \u201casking for examples of legitimate business purposes for mixing,\u201d she says. \u201cThey specifically asked for it.\u201d<\/p>\n \u201cThey need it to balance against what harm they would be doing by implementing this rule against the legitimate business purposes for mixers,\u201d she says.<\/p>\n \u201cWe need to talk very publicly and also then submit to FinCEN all the legitimate ways that mixers are important to preserving privacy.\u201d<\/p>\n Don\u2019t miss the next big story \u2013 join our\u00a0free daily newsletter<\/a>.<\/strong><\/p>\nA \u201cfull frontal assault\u201d from regulators<\/h2>\n
You might get in trouble with us\u2026<\/h2>\n
\n