U.S. Treasury Targets Crypto Mixers in Anti-Money Laundering Efforts After Hamas Attacks

U.S. Treasury Targets Crypto Mixers in Anti-Money Laundering Efforts After Hamas Attacks

Crypto News – The U.S. Treasury Department previously took actions against individuals associated with Tornado Cash, but their recent proposal to regulate crypto mixers stems from concerns about the potential use of crypto in funding Hamas.

In an announcement on October 19th, the Financial Crimes Enforcement Network (FinCEN), a part of the U.S. Treasury, suggested categorizing cryptocurrency mixing as a “primary money laundering concern” in light of recent Hamas attacks on Israel.

FinCEN’s assessment revealed an increasing percentage of convertible virtual currency (CVC) transactions processed by CVC mixers originating from likely illicit sources. To address this, they proposed that domestic financial institutions and agencies implement specific recordkeeping and reporting requirements for transactions involving cryptocurrency mixers.

Initially, FinCEN considered a more limited approach under Section 311 of the U.S. Patriot Act to target terror financing linked to groups like Hamas, ISIS, and North Korea-affiliated actors. However, they concluded that a broader strategy was necessary to address the associated risks effectively.

Deputy Treasury Secretary Wally Adeyemo stated that the inclusion of crypto mixers in entities sanctioned by the U.S. government aims to combat the exploitation of digital assets by state-affiliated cyber actors, cybercriminals, and terrorist groups. He pointed to instances where groups like Hamas and the Palestinian Islamic Jihad allegedly used cryptocurrency for illicit purposes.

This move by FinCEN follows concerns expressed by U.S. lawmakers about the potential financing of terrorist organizations through cryptocurrencies. On October 17th, over 100 members of Congress urged the Biden administration to take decisive action against illicit crypto activities. Additionally, the Treasury officials added a Gaza-based crypto operator allegedly linked to Hamas to the list of Specially Designated Nationals on October 18th.

In August 2022, the Treasury’s Office of Foreign Asset Control effectively prohibited U.S. residents from using Tornado Cash by adding specific crypto addresses associated with the mixer to its list of Specially Designated Nationals. This action led to a lawsuit filed by six individuals supported by the cryptocurrency exchange Coinbase. In August 2023, a federal judge ruled on a summary judgment, affirming that the Treasury Department had acted within its authority.

FinCEN has allowed a 90-day window for public comments on the proposed regulation of cryptocurrency mixers, following its publication in the Federal Register. The department will review the feedback before considering whether to enact the proposed policy regarding crypto mixers.