FinCEN drops crypto mixer rule over privacy and reporting concerns

FinCEN has withdrawn its proposed rule on international crypto mixing, citing concerns that it could chill legitimate activity and burden financial institutions. The Treasury bureau’s proposal, announced in 2023, sought more reporting on transactions involving crypto mixers, which obscure the source, destination or amount of funds.

FinCEN said it considered public comments before withdrawing the proposal as part of the administration’s effort to make digital asset rules fit for purpose, according to its announcement of the rule withdrawals.

The withdrawal ends this proposed reporting regime before it could add new compliance steps for institutions handling crypto transactions.

What would the mixing rule have required?

The 2023 proposal would have treated international convertible virtual currency mixing as a class of transactions of primary money laundering concern under Section 311 of the USA PATRIOT Act. It would have required covered financial institutions to report transactions they knew, suspected or had reason to suspect involved mixing.

Those reports could have included wallet addresses, transaction hashes and IP addresses, The Block reported. The proposal defined mixing broadly, covering methods such as pooling funds, splitting transactions across multiple transfers, using single-use wallets and delaying transactions so deposits and withdrawals could not be matched by timing.

FinCEN’s notice says commenters objected to the breadth of that definition. They warned it could sweep in legitimate activity and create a large reporting burden for covered institutions. The agency also said it continues to believe illicit actors use mixers to hinder law enforcement investigations.

What changes for crypto users and financial firms?

Because the proposal was never finalized, withdrawing it does not change financial institutions’ existing obligations, The Block reported. Banks and other covered firms will not have to begin filing reports under this proposed mixing rule.

For people using self-hosted wallets or privacy tools, the decision removes one proposed source of new scrutiny; it does not amount to a general approval of mixing services. FinCEN said it will continue monitoring activity involving crypto mixers and may take further action in the future.

Why did FinCEN withdraw the proposal now?

The agency said its decision followed consideration of comments on the rule. It also cited the administration’s broader effort to make digital asset regulations “fit-for-purpose,” according to its announcement.

The withdrawal reverses a proposal FinCEN framed in 2023 as a way to increase transparency and combat illicit finance. In practice, the change means institutions avoid the additional reporting framework proposed for mixer-related transactions, while the existing rules they already follow remain in place.

Sources

• announcement of the rule withdrawals — fincen.gov