Prosecutors Raise Questions About KYC/AML Against Cryptocurrency Mixers

  • Richard Marley
  • May 18, 2021
  • 2 minutes read
  • 152

According to the prosecutors and financial regulators, cryptocurrency mixers are reportedly being used by enterprises to launder illicit funds, despite the common beliefs that the mixers are a legit service to secure financial privacy in the crypto industry. 

Recently, a crypto service company was charged with criminal proceedings regarding the cryptocurrency mixer. This has pushed the prosecutors and the financial watchdogs to raise questions regarding the requirement of Know Your Customers and Anti-Money Laundering regulations for crypto transmitters. 

Cryptocurrency mixers or most commonly known as tumblers have been a part of the crypto sector for a long time. They are known to support the anonymity factor and privacy which makes cryptocurrency more appealing. Through bitcoin mixers, a bitcoin holder can send the currency to a service that mixes the bitcoins with other bitcoins in such a way that the transactional history and the source of the currency become blurred. Through this method, the source of the original funds become hard to identify. Bitcoin mixer transactions are visible on the blockchain but become harder to track down. Some users claim that mixers are a legit way of ensuring privacy in the sector but criminal activity linked to it has made the financial regulators think otherwise and has led them to place stringent scrutiny. 

FinCEN (Financial Crime Enforcement Network) is the US regulatory authority that defines anyone involved in transmitting digital currency and is not a part of the transaction as a money transmitter for the regulatory purpose. Through this definition, FinCEN considers cryptocurrency mixers as money transmitters hence making the financial watchdogs implement Know Your Customer, Anti-Money Laundering regulations, and Counterterrorism Financing under the Bank Secrecy Act requirements that have been long enforced on the other financial sectors. 

Failure to register with the FinCEN means the mixer is involved in the unlicensed money service business and can lead to financial penalties including prison time and heft fines.