U.S. Treasury Proposes Rulemaking On Crypto Mixers; TradFi Firm DTCC Acquires Securrency

mixers and money laundering

U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a new proposed rulemaking “that identifies international Convertible Virtual Currency Mixing (CVC mixing) as a class of transactions of primary money laundering concern.” Citing terrorist organizations and illicit finance entities such as Hamas, Palestinian Islamic Jihad, and the Democratic People’s Republic of Korea (DPRK) as customers of mixing technology, Treasury said the new rules will promote transparency for mixing activities and therefore combat money laundering. Read the release.

Read the 80-page proposal from FinCEN here.  Comments are due 3 months from now pending publication of the proposal in the Federal Register.

FinCEN Director Andrea Gacki, who came aboard in July from the Office of Foreign Assets Control (OFAC), notes the use of the Patriot Act (Section 311) in the release, “This is FinCEN’s first ever use of the Section 311 authority to target a class of transactions of primary money laundering concern, and, just as with our efforts in the traditional financial system, Treasury will work to identify and root out the illicit use and abuse of the CVC ecosystem.”

Back in August of last year, Treasury made some of its first steps against mixers when it placed Tornado Cash and several dozen crypto wallet addresses on an OFAC’s SDN (Specially Designated Nationals) list. Unfortunately for some crypto owners a few days later, many wallets ran afoul of compliance when they were hit with a “dusting attack” – i.e. law-abiding crypto wallets were sent crypto from sanctioned wallet addresses using the mixing service. 

Coin Center responded forcefully to Treasury’s actions last year which included the observation: “The Tornado Cash Entity, which presumably deployed the Tornado Cash Application, has zero control over the Application today.” CoinCenter also said at the time, “By treating autonomous code as a ‘person’ OFAC exceeds its statutory authority.” Read that one.

What you should know: There is no denying mixers are used for illicit purposes. On the other hand, it’s privacy-preserving processes can protect vulnerable populations needing to transfer funds.

more tips:

Crypto Mixers and AML Compliance – Chainalysis

tokenization acquisition

Traditional finance infrastructure provider Depository Trust & Clearing Corporation (DTCC) announced the acquisition of Securrency yesterday. Ledger Insights says that DTCC overall plans “to enable institutional DeFi and embed digital assets within its existing products.” Regarding Securrency, in particular, it’s best known “for its Compliance Aware Token framework, where security tokens are aware of local regulations..” and part of DTCC’s foray into tokenized assets, digital currencies and more.

For a sense of scale, DTCC’s current business processes over $2 quadrillion in transactions a year. Read more from Ledger Insights.

What you should know:
1 quadrillion dollars =
1,000 trillion dollars =
10x the $100 trillion annual global economy
… and DTCC sees twice that in a year.

legislation marketing

Senator Elizabeth Warren (D, MA) and her team continue to utilize all available media outlets to seize the opportunity they see for  [S.2669] Digital Asset Money Laundering Act” co-sponsored by Senator Roger Marshall (R, KS).

In a new Wall Street Journal op-ed, Warren shares a byline with Marshall for an  opinion titled called, “Cryptocurrency Feeds Hamas’s Terrorism.” The Senators bring together their essential argument around anti-money laundering (AML) compliance and DeFi, “There is no reason billion-dollar Bitcoin mining companies, wallet providers and others in so-called decentralized finance shouldn’t do the same. A few crypto actors already conduct some of these checks, demonstrating a capacity to comply and an understanding of the need to do so.” Read the op-ed.

what you should know: “Crypto actors” may be the highest compliment attainable for blockchain industry participants from the Senators.

more tips:

Crypto Council for Innovation (CCI) takes issue with the Senators’ WSJ op-ed – CCI on X

bear market marketing

The Wall Street Journal looks at how companies such as Coinbase and Kraken are looking to improve the image of cryptocurrency with consumers and lawmakers.  Kraken’s “See What Crypto Can Be” and Coinbase’s “Stand With Crypto” campaigns and the associated marketing budgets are singled out.

Kraken CMO Mayur Gupta tells the WSJ that his company is aiming “to strengthen its brand positioning during an extended crypto bear market by targeting ‘fence-sitters.'” Read what that means..

Senate Banking Chair Sherrod Brown (D, OH) pops up in the article and offers a statement saying, “After holding numerous hearings on crypto, it’s clear: the last thing we need is for the crypto industry to write their own rulebook – too many Ohioans have been burned by fraud and scams.” Read more.

what you should know: The question remains… is Senator Brown in favor of any rulebook? -any legislation? He may support the strategy of leaving digital assets outside the U.S. regulatory perimeter in hopes of degrading it… that is to say, no new U.S. digital assets regulatory framework.

New York State lawsuit

New York State Attorney General Letitia James (D) announced that her office has filed a formal complaint (see it) against crypto companies Gemini, Genesis  Global, Digital Currency Group (DCG) and their affiliates for “defrauding more than 230,000 investors, including at least 29,000 New Yorkers, of more than $1 billion.” The AG’s office said that the culprit was the Gemini Earn product and its “low risk” pitch when it fact it was very risky.

AG James “is seeking to permanently stop Gemini, Genesis, DCG, and its executives from engaging in any business related to the purchase and sale of securities and commodities within or from New York. In addition, Attorney General James seeks restitution for all defrauded investors and disgorgement of all ill-gotten gains.” Read the press release.

Fortune’s Leo Schwartz covers the news and explains how Gemini Earn worked saying that DCG began by offering “users interest payments to deposit crypto that was then loaned out to companies such as hedge funds.” And then, the risks spiraled from there. Read the details.

what you should know: AG James taps back into the crypto “match” with the DCG lawsuit after her CRPTO digital assets legislation in the Spring seemed to go nowhere in the New York State legislature -that’s right… an Attorney General can introduce legislation in New York State. (Imagine U.S. Attorney General Merrick Garland introducing legislation?) James is battling for power – and digital assets oversight – in New York State with New York Department of Financial Services Superintendent Adrienne Harris, also a Democrat.

The James-Harris battle is a component of a larger digital assets “tag team” match within the Democratic party where the teams are shaping up to be Warren/Biden/Gensler/James versus Gillibrand/Hochul/Behnam/Harris.

hear ye, hear ye

The House Financial Services (HFS) Committee has added one more hearing for next week titled, “Moving the Money: Understanding the Iranian Regime’s Access to Money Around the World and How They Use It to Support Terrorism” taking place Thursday, October 26 at 9:00 a.m. ET.

There are now six HFS hearings next week – Tuesday to Thursday – with at least one having direct focus on digital assets. See them all here.

what you should know: The majority House Republicans, and HFS Chair Patrick McHenry (R, NC), in particular, are going to do everything they can to appear to be legislating. 6 HFS hearings next week is an example. Republicans’ ultimate goal will be to overcome the effects of the current Speaker drama in the collective mind of the electorate as it considers picking sides for 2024. House floor votes on digital assets legislation this year are not off the table – yet.

crypto slice

Lionel Laurent, a Paris-based Bloomberg opinion writer, published a new piece yesterday titled, “Crypto Is a Small Slice of Hamas’ Funding – But It’s Deadly.” He points to the same data used in last week’s Wall Street Journal article – which was provided by Elliptic – on terrorist financing and crypto. Laurent writes, “There are as many sources of terrorist funding as there are letters in the alphabet, from art to gold to zakat taxes. Crypto may not be as prevalent as cash, but it’s up there. Following terrorism’s money will necessarily mean more tracing of the virtual kind.” Read more via The Washington Post.

The data from blockchain analytics firm Elliptic continues to be at the center of the current storm around cryptocurrency even as competitors such as Chainalysis and TRM Labs offer differing takes (1, 2) with their own data.

what you should know: The message of last week’s WSJ article continues to spread.

FTX donations

As the trial of Sam Bankman-Fried (SBF) continues in New York City, more light is being shed on the impact of political donations made by the former CEO and his co-horts at cryptocurrency platform FTX.

In Vermont, local publication Seven Days reviews the election of Rep. Becca Balint (D, VT) over then-lieutenant governor Molly Gray (D, VT) for the state’s at-large congressional district.  In a text message revealed at the SBF trial, the director of an SBF-funded super PAC, Michael Sadowsky, says to FTX executive Nishad Singh, “The winner here is favored to be the next senator of VT, once someone retires,” according to Seven Days. The publication reports that Singh made a $1.1 million donation to the PAC “which went on to spend nearly $1 million on ads supporting Balint…” Read the article.

what you should know: This story about SBF’s dirty little fingers in a Democratic election is another reminder of the unspoken reason why Democratic leadership shies away from crypto.

Speaker update

“The House speaker situation is a total mess. Where do we go from here?”

“Here are four possible scenarios:”

“(Jordan winning feels the least likely at this point.)”

what you should know: this section is probably out of date by the time you read it.

still more tips

“BREAKING: The [SEC’s] case against Ripple’s [Brad Garlinghouse] and [Chris Larsen] has been DISMISSED after both parties agreed to the dismissal. This means there will be no trial in April of next year.” – Eleanor Terrett of Fox Business on X

UAE emirate launches new free zone for digital assets, Web3 and AI – Cointelegraph

Asian nations more cautious of crypto regulation after Hamas taps digital assets for Israel strike – South China Morning Post

Public Comment on IOSCO’s Consultation Report on Policy Recommendations for Decentralized Finance (DeFi) – Blockchain Association

Chamber Files Amicus Brief In SEC v. Binance.US – Chamber of Digital Commerce