US Treasury Scraps Crypto Mixer and Self-Hosted Wallet Reporting Rules

The U.S. Treasury Department is walking away from two long-standing regulatory proposals that would have imposed new reporting and record-keeping obligations on financial institutions handling cryptocurrency transactions tied to mixing services and self-hosted wallets.

The Financial Crimes Enforcement Network, the Treasury bureau charged with combating money laundering, said on October 5 that it is withdrawing a 2023 proposal targeting international crypto mixing as well as a 2020 measure aimed at unhosted wallets. The decision, set to be formally published in the Federal Register on October 6, leaves existing compliance duties for banks, exchanges and money services businesses unchanged because neither rule was ever finalized.

The 2023 proposal marked an unusually expansive use of FinCEN's authority. Invoking Section 311 of the USA PATRIOT Act, the agency sought to designate international convertible virtual currency mixing as a class of transactions of "primary money laundering concern." It was the first time that authority had been applied to an entire category of activity rather than a specific institution or jurisdiction.

Under the proposed special measure, covered financial institutions would have been required to report transactions they knew or suspected involved mixing. The information sought included transfer amounts, cryptocurrency types, the mixer used, customer wallet addresses, transaction hashes, transaction dates, IP addresses and descriptions of the transaction. Institutions would also have had to retain customer names, dates of birth, addresses and email addresses.