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US Treasury distinguishes between privacy and obfuscation in crypto mixers

Nelson addresses national security risks posed by crypto mixers.

Golden scale with crypto mixer keyphrase.

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US Treasury official Brian Nelson addressed the controversial topic of crypto mixers, the risks they pose to national security, and the distinction between privacy and obfuscation in a conference at Consensus today.

“We believe that there is a difference between sort of obfuscation and anonymity enhancing services and those that support privacy,” he stated.

While acknowledging the desire for privacy in financial transactions, Nelson pointed out that mixers are designed to obscure the origin, movement, and destination of assets, making them attractive to illicit actors.

“North Korean cyber criminals and ransomware actors [are] using mixers to obfuscate the movement of these funds, the destination of these assets. And that creates a significant national security challenge for us,” Nelson explained.

The Treasury Department’s proposed rulemaking aims to increase transparency around virtual currency mixing services, not ban them, while managing illicit finance risks and respecting privacy, Nelson clarified.

When balancing privacy and obfuscation, Nelson stressed focusing on the activity, not the product. He noted that mixing entities often lack proper KYC and AML measures, making it hard for Americans and financial institutions to comply with the law and avoid accidentally supporting illegal activities.

Nelson also discussed the Treasury’s request to Congress for more authority and resources to tackle crypto issues, like restricting US financial institutions and virtual asset service providers from working with those in jurisdictions with poor AML and CFT compliance.

Lastly, Nelson emphasized that virtual asset service providers must register with FinCEN as money services businesses or financial institutions based on their activities, not their own definition of their regulatory status.

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