The US Treasury's FinCEN proposes labeling international crypto mixing as a “primary money laundering concern”, citing its use by Hamas and other illicit actors

Under pressure to address reports that Hamas and other terrorist groups are partially funded with crypto …

CoinDesk 2023-10-20 Jesse Hamilton

Context & Ripple Effects

The proposal extends Treasury’s earlier warning that non-compliant DeFi services present a major illicit-finance risk, shifting attention from broad DeFi oversight to the transaction-obscuring tools that can sit around it. Treasury’s DeFi AML warning supplied the wider policy frame.

The evidentiary debate is contested: research tied Hamas-linked wallets to roughly $41 million in receipts, while Chainalysis cautioned that some terrorism-financing estimates relied on flawed analysis. Chainalysis’s warning on the metrics makes the focus on mixers consequential because it targets concealment infrastructure rather than treating all crypto activity alike.

First-order effects

International crypto-mixing services face substantially greater U.S. financial-crime scrutiny, while regulated firms handling related flows must reassess their exposure.
The proposal raises the compliance and reputational burden for platforms and users that rely on mixing to obscure transaction trails, regardless of lawful uses.

Second-order effects

Exchanges, custodians, and other intermediaries are likely to tighten monitoring and risk controls around mixer-linked transactions, pushing more activity away from services seen as unable to document source of funds.
The move reinforces pressure on crypto businesses to demonstrate effective AML controls, a pressure later illustrated by U.S. allegations over Binance’s compliance failures.

Third-order effects

If Treasury continues to target specific crypto infrastructure as illicit-finance chokepoints, the sector’s legitimacy will increasingly depend on whether regulated access points can separate traceable commerce from anonymity-enhancing tools.
The policy challenge will be distinguishing demonstrable illicit-finance risks from broad claims about crypto use by terrorist groups, especially where underlying transaction estimates are disputed.

The trend: Crypto policy is moving from general warnings about illicit finance toward targeted oversight of the tools and intermediaries that obscure or enable high-risk transaction flows.

Discussion

@p_hold @p_hold on x
Mixing ≠ Coinjoin https://www.fincen.gov/... [image]
@propelforward Drew Hinkes on x
#FinCEN #NPRM on #CVC #Mixing is a lot to take in, but, wow, that definition of “mixing” would include almost all #DeFi. Time to #thread /1 [image]
@propelforward Drew Hinkes on x
included in the list are (here we go...): (1) pooling or aggregating CVC from multiple persons, wallets, addresses, or accounts. This would appear to apply to every DeFi protocol that pools assets from third parties. hm. /3
@ustreasury @ustreasury on x
Today, Treasury's Financial Crimes Enforcement Network announced a proposed rule to increase transparency around international Convertible Virtual Currency Mixing to combat its use by malicious actors including Hamas, Palestinian Islamic Jihad, & the DPRK. https://www.fincen.gov/…
@matthewniemerg Matthew Niemerg on x
The definition FinCen is using for mixing is concerning.
@jp_koning John Paul Koning on x
Invoking Section 311 of the Patriot Act, FinCEN has just put an entire class of crypto transactions - mixing - on its list of “primary money laundering concerns.” The upshot is that if an exchange suspects that you've deposited mixed crypto, it'll have to report this to FinCEN.
@propelforward Drew Hinkes on x
note- this applies to covered financial institutions; The definition of CFI does not include every DeFi protocol BUT could easily be expanded by the allegation that a protocol is an unlicensed broker or dealer, FCM, Introducting broker, VASP or MSB which would trigger obligations
@jp_koning John Paul Koning on x
FinCEN says that crypto mixing is of primary money laundering concern, yet it also admits that there are legitimate reasons to mix. Given this admission, why doesn't it set a threshold, say $5k, below which mixing is exempt, rather than declaring all mixing to be of concern? [ima…
@raniergrant Ranier Styles Grant on x
they truly want to obliterate and abolish DeFi intentionally this is multiagency coordination for 6050i with the IRS, 6045 with the Treasury, the CFTC, and now Section 311 under Patriot act and FinCen @prestonjbyrne @coincenter @valkenburgh @NeerajKA
@freekorea_us Joshua Stanton on x
Important & overdue: FinCEN to declare crypto mixing to be transactions of primary money laundering concern. Mixers will be required to keep detailed records about customers & report them to FinCEN. https://www.fincen.gov/... [image]
@carol_vancleef Carol Van Cleef on x
Extraordinary release from ⁦@FinCEN_nUSA⁩ deploying special Patriot Act authority designating convertible virtual currency mixing transactions as a primary money laundering concern. Critical - it may only be a proposed rule but... impact is immediate https://www.fincen.gov/...
r/ethtrader r on reddit
The public will have 90 days to comment on this proposed rule that would allow the US Treasury to effectively criminalize privacy on the blockchain
@iampaulgrewal @iampaulgrewal on x
It's disappointing that some would capitalize on a tragedy to scapegoat crypto while ignoring significant terror finance elsewhere. But no currency—whether fiat, gold, or crypto—should ever be used to support terrorism. Here's how we fight it at @coinbase. https://www.coinbase.co…
@jconorgrogan Conor on x
The treasury department has sanctioned a Hamas-linked wallet as Politico reports that “Crypto's role in financing Hamas' activity has emerged as a hot issue for lawmakers” The sanctioned wallet has $16 in it and made its last transfer 18 months ago [image]
@stevennerayoff Steven Nerayoff on x
Could @SenWarren be right crypto is used to fund terrorism? @SBF_FTX donated $39 million just to her party's midterm election. She may have a point but referring to her party in such derogatory terms is going too far. Some may be unpatriotic but come on terrorists? @JohnEDeaton1
@repmikelevin Rep. Mike Levin on x
In the months leading up to Hamas' brutal attack against Israel, Hamas raised millions of dollars via crypto, evading U.S. sanctions. I joined over 100 of my colleagues in urging @POTUS to address and prevent crypto-financed terrorism. https://www.reuters.com/...
@timobrien Tim O'Brien on x
Eighty-six members of Congress representing both Democrats and Republicans pressed the Biden administration for details on how it plans to prevent militant organizations from using crypto in the “financing of terrorism.” Read here: https://www.bloomberg.com/...
@pauly0x Pauly on x
Web3 = corporate terrorism 👎 Crypto 2.0 = freedom for all 👍
@billhughesdc @billhughesdc on x
Glad to see @chainalysis correcting the record on crypto and terrorist financing in this blog post. The key points: 1) Terrorism financing is a very small portion of the already very small portion (0.24% of total volume in 2022) of cryptocurrency transaction volume that is...
@zerohedge @zerohedge on x
*BROWN, WARREN QUERY US PLAN TO CURB CRYPTO FINANCING TERRORISM Can't have those $2,000 crypto donations possibly overtaking the billions in cash paradrops [image]
@sensherrodbrown Sherrod Brown on x
Hamas's terrorism is fueled by cryptocurrency. We need to crack down on illicit crypto and stop terrorists from moving money around, evading sanctions, and funding their acts of evil. We must curb this emerging threat & protect our national security. [image]
@lex_node @lex_node on x
imo Warren and the Biden admin are desperately using crypto as a scapegoat to distract from the fact that the Biden admin authorized BILLIONS of dollars in “aid” etc that likely is the real source of funding for Hamas
@senwarren Elizabeth Warren on x
Hamas raised millions via crypto in the months leading up to their attack on Israel. @RogerMarshallMD, @RepCasten and I are leading 100+ lawmakers urging the Biden admin to address crypto-financed terrorism. https://www.reuters.com/...
@mdudas Mike Dudas on x
warren: “how do we prevent crypto-financed terrorism?” hamas: “please don't send us money via crypto - it's not effective; the israelis can freeze and seize it” [image]
@ddayen David Dayen on x
You may remember the Blockchain 8, who tried to stop SEC investigations into crypto. They've been quiet after reports that Hamas used crypto to fund itself. In fact, 2 of the Blockchain 8 signed onto @SenWarren's effort to stop crypto money laundering: https://prospect.org/... [i…
@valkenburgh Peter Van Valkenburgh on x
Sensational early reporting on the scale of Hamas crypto fundraising significantly misstated the amounts involved. In this important debunking Chainalysis shows how actual terrorist usage may be 1/2-of-1% of the previously reported numbers. [image]
@jeffjohnroberts Jeff Roberts on x
This @chainalysis “Correcting the record” post feels like a direct response to that overblown WSJ report that crypto was a prime cause of the Hamas attack https://www.chainalysis.com/ ...
@chainalysis @chainalysis on x
In recent days following the horrific terrorist attack by Hamas in Israel, we have seen overstated metrics and flawed analyses of terrorist groups' use of cryptocurrency, and feel compelled to address some misconceptions. 🧵
@cmdoerfler Chris Doerfler on x
one of the patently false statements by Chainalysis. “The unique transparency inherent in blockchain technology makes cryptocurrency particularly traceable and thus less suitable for illicit activities, including financing terrorism.” https://www.chainalysis.com/ ...
@neerajka Neeraj K Agrawal on x
Chainalysis explains why recent viral estimates of Hamas' crypto use are likely inflated. It looks those estimates assume *all* flows through services providers that process illicit transactions are illicit. That's probably not the case https://www.chainalysis.com/ ...
@chainalysis @chainalysis on x
One such service is Buy Cash, a Gaza-based business that provides money transfer and virtual currency exchange services that was sanctioned by @USTreasury and OFAC today (we'll have more on Buy Cash later). https://home.treasury.gov/...
r/ethtrader r on reddit
Correcting Recent Claims on Crypto's Role in Terrorism Financing

Chronicles