FinCEN Proposes New Regulation to Combat Money Laundering and Terrorist Financing

The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has taken a significant step in the fight against money laundering and terrorist financing by announcing a Notice of Proposed Rule Making (NPRM). This NPRM identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern.

The move comes in response to growing concerns regarding the extensive use of CVC mixing services by various illicit actors worldwide, including state-affiliated cyber actors, cybercriminals, and terrorist groups such as Hamas, Palestinian Islamic Jihad, and the Democratic People's Republic of Korea (DPRK). The proposed rule aims to enhance transparency around CVC mixing to prevent its exploitation by malicious actors.

Deputy Secretary of the Treasury, Wally Adeyemo, emphasized the department's commitment to combating the misuse of CVC mixing by a broad range of illicit actors, including terrorist groups. The NPRM represents the Treasury's efforts to counter the illicit use of the entire CVC ecosystem.

FinCEN Director Andrea Gacki highlighted the critical role CVC mixing plays in enabling ransomware operators, rogue state actors, and other criminals to fund unlawful activities while obscuring the origins of their ill-gotten gains. This NPRM marks FinCEN's first use of the Section 311 authority to target a class of transactions with primary money laundering concerns.

One of the key issues surrounding international CVC mixing is the lack of transparency, which poses a significant risk to money laundering and national security. The NPRM aims to increase transparency and require covered financial institutions to report information related to transactions involving CVC mixing, especially those occurring within or involving jurisdictions outside the United States when there is suspicion or reason to suspect such activities.

The move by the U.S. Treasury Department builds on previous actions targeting illicit finance involving mixing services. In February 2022, the 2022 National Money Laundering Risk Assessment (NMLRA) highlighted the increased use of anonymity-enhancing technologies, including CVC mixing, by criminals to conceal the movement of funds.

Shortly after the publication of the NMLRA, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) designated entities such as Blender.io and Tornado Cash for providing mixing services linked to money laundering activities. These actions were part of broader efforts to counter illicit finance in the CVC ecosystem.

The proposed rule aims to improve transparency and further align with efforts to combat terrorist groups, ransomware criminals, and state actors evading global sanctions. It seeks to strengthen anti-money laundering measures and enhance the integrity of the global financial system.

The NPRM reflects the U.S. government's determination to stay ahead of evolving threats related to financial crimes and to work with international partners to address the challenges posed by emerging technologies and illicit actors in the digital age.