FinCEN Proposes New Regulation for Financial Institutions to Enhance Transparency in Convertible Virtual Currency Mixing

By: Jennifer Valentine

Last week, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rule Making (NPRM) that designates international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern. 

Convertible Virtual Currency (CVC) mixing is a process that obscures the source, destination, and amount of CVC transactions, making them untraceable and anonymous. The Notice highlights that CVC mixing is frequently exploited by illicit foreign actors, posing a threat to U.S. national security and the financial system. 

Illicit actors use CVC mixing for money laundering, sanctions evasion, and other illegal activities, including ransomware attacks and participation in darknet markets. The NPRM notes that the percentage of CVC transactions processed by CVC mixers originating from likely illicit sources is increasing, and these activities often involve foreign jurisdictions.

This proposed rule aims to enhance transparency in CVC mixing activities since the lack of such in these transactions poses a significant money laundering and national security risk. It suggests imposing additional recordkeeping and reporting requirements on covered financial institutions to mitigate the risks associated with these transactions. The aim is to enhance transparency, assist law enforcement in identifying perpetrators, and deter illicit actors from using CVC mixing for illegal activities. 

The proposed rule, under special measure one, would mandate covered financial institutions to implement specific recordkeeping and reporting requirements for instances when they know, suspect, or have reason to suspect that a transaction involves CVC mixing in foreign jurisdictions. 

This effort aligns with the Treasury Department's broader goal of countering the illicit use of the CVC ecosystem by various malicious actors.

The NPRM has been submitted to the Federal Register and is currently available here