Coinbase issues statement on US Treasury's proposed crypto mixing rules
The proposed rules would require crypto exchanges and platforms to report any transactions sent to or received from a mixer service.
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Coinbase has issued statements that the US Treasury Department’s proposal needs to include more adequate measures that use compliance resources efficiently.
The firm’s Chief Legal Officer, Paul Grewal, posted their position regarding the issue on X.
We filed comments today on @USTreasury’s proposed rule on crypto mixing. @coinbase supports effective regulations, but not bulk data collection and reporting requirements for all transactions involving any crypto mixing–even with no indication of suspicious activity. 1/6
— paulgrewal.eth (@iampaulgrewal) January 22, 2024
In a comment filed Monday to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Coinbase suggested that regulated crypto platforms are already obligated to record-keeping and reporting rules on suspicious activities and illicit crypto mixing.
Coinbase claims that the proposed requirement for crypto platforms to report all crypto mixing activities, including those with legitimate purposes, is not an efficient use of companies’ resources. The filing also took issue with no monetary threshold for recordkeeping and reporting.
The absence of a monetary threshold will likely “lead to bulk reporting of non-suspicious transactions,” Grewal said, adding that Congress echoes this thinking.
“Congress has said that kind of data dump is a waste of time and resources. We agree,” Grewal adds.
Coinbase’s comment comes in response to FinCEN’s proposed framework from October that aims to improve transparency surrounding crypto mixing activities. The proposed framework seeks to address an apparent regulatory gap allowing illicit actors to launder funds while taking advantage of the privacy and anonymity (although only to a certain degree) of some crypto technologies.
While the goals of the proposal may be valid, the broad requirements could place an undue burden on regulated entities without providing truly useful data to law enforcement, according to critics. By requiring reporting all transactions related to mixers and other anonymizing services without a threshold, platforms may be flooded with unnecessary data obscuring suspicious activities.
FinCEN’s proposed framework addresses cryptocurrency mixers and tumblers that obscure the source of funds and allow illicit finance. These services combine crypto funds from multiple sources, mixing them before sending them to destination addresses. This breaks the crypto transaction record on the blockchain, making it much harder to trace the money back to its source.
While mixers and tumblers have some legitimate privacy purposes, they can also enable money laundering, tax evasion, terrorist financing, and other criminal activities. FinCEN argues there is currently a regulatory gap that needs to provide more visibility into mixer transactions, allowing bad actors to take advantage of the anonymity these services offer.
The proposed rules would require crypto exchanges and platforms to report any transactions sent to or received from a mixer service. This data could then be analyzed by law enforcement for suspicious patterns of activity.
However, as Coinbase argues, requiring reporting on all mixer-related transactions rather than just suspicious ones significantly burdens regulated entities. This bulk data may be less useful for uncovering crimes than more targeted financial intelligence.
There are also wider questions around the privacy implications of the rules and whether they could infringe on legitimate use of mixing services. As with many policy issues around crypto, regulators are still searching for the right approach to provide accountability without stifling innovation or overreaching. Hence, there is a need for continued debate and engagement between government and industry stakeholders.