Following the recent Hamas attack on Israel, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has proposed designating cryptocurrency mixing as an area of "major money laundering concern." In an announcement made on October 19. FinCEN expressed its assessment that the share of transactions involving Convertible Virtual Currencies (CVC) processed by CVC mixers with potential origins from illicit sources is on the rise. As a response to this concern, FinCEN is suggesting that domestic financial institutions and other entities implement specific recordkeeping and reporting requirements for transactions involving cryptocurrency mixers.
The U.S. Treasury Undersecretary, Wally Adeyemo, has indicated that the primary goal behind adding cryptocurrency mixers to entities sanctioned by the U.S. government is to combat the exploitation of digital assets by "state-affiliated cyber actors, cybercriminals, and terrorist groups." Adeyemo specifically referred to the illegal use of cryptocurrencies by Hamas, the organization responsible for the October 7 attack on Israel, as well as Palestinian Islamic Jihad, which was blamed for the October 17 Gaza hospital incident. As a result, FinCEN is considering issuing a rule under Section 311 of the USA Patriot Act, which would address terrorist financing concerns linked to Hamas, ISIS, North Korea-supported actors, and affiliated entities.
U.S. lawmakers have also expressed their concerns about terrorist groups allegedly utilizing cryptocurrencies for funding. In fact, over 100 members of Congress urged the Biden administration on October 17 to take swift and decisive action to curb illegal cryptocurrency activities effectively. Furthermore, the Treasury Department recently added a Gaza-based cryptocurrency operator with alleged ties to Hamas to the list of Specially Designated Nationals on October 18.
As part of the regulatory process, FinCEN has allowed a 90-day public comment period on the cryptocurrency mixer proposal after it is published in the Federal Register. Government agencies will review the feedback received during this period before deciding whether to implement the proposed policy related to cryptocurrency mixers.
