Tag: AML

Posted on

Tornado Cash And Crypto Mixing Today: An Interview With DEF’s Amanda Tuminelli

for staff: tornado cash

In Congress, crypto mixing and its privacy-enhancing use of blockchain technology has been a troubling innovation for some Members. Case and point: crypto mixer Tornado Cash has been front-and-center in illicit finance deliberations within the U.S. government and was sanctioned in 2022 by U.S. Treasury.

Last Friday, blockchain tipsheet sat down with Amanda Tuminelli, Chief Legal Officer of decentralized finance advocacy firm DeFi Education Fund (DEF). We discussed both the latest and the “basics” in crypto mixing as well as the Department of Justice’s indictment in August 2023 of Tornado Cash software developers Roman Storm and Roman Seminov.

Roman Storm is currently in custody and his case has been delayed until later in the year in the Southern District of New York. Roman Seminov remains at large.

Also, last October, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced a Notice of Proposed Rule Making (NPRM) – see it – that identified crypto mixer transactions as a source of money laundering. DeFi Education responded with a formal comment (PDF).

With lawmakers and their staffs in mind, blockchain tipsheet’s interview with Ms. Tuminelli covered:

    • why crypto mixers are controversial
    • the lawful purpose of mixers
    • balancing AML regimes and mixers
    • crypto wallets and identifiers
    • overview on indictment of Storm and Seminov
    • Dutch court convicts Tornado Cash developer Alexei Pertsez
    • scenarios pending U.S. court decisions
    • unlicensed money transmitting
    • crypto mixing 5-10 years from now

The transcript has been lightly edited for clarity.

blockchain tipsheet: Why have crypto mixers become controversial?

Amanda Tuminelli: I think that many lawmakers are concerned that “mixing” automatically means unlawful conduct or a national security concern. And it has become fraught with national security issues because of the DPRK (North Korea) using Tornado Cash or the allegations that various terrorist groups are using mixing services in order to fund their activities. I think that is happening. And we absolutely are not here to support that in any way.

But, there is a disproportionate focus on those groups using mixers. And I think their focus should be more properly on the technology: what is mixing and what is it really going on under the hood, and who in the mixing tech stack is the appropriate person to regulate. Continue reading “Tornado Cash And Crypto Mixing Today: An Interview With DEF’s Amanda Tuminelli”

Posted on

Senate Banking Hearing On Illicit Finance Includes Stablecoin Focus

Deputy Treasury Secretary Wally Adeyemo

With the “script” written in the previous 24 hours by prepared testimony, a Congressional letter and a draft of new anti-money laundering (AML) legislation for crypto, the Senate Banking Committee hearing titled, “An Update from the Treasury Department: Countering Illicit Finance, Terrorism and Sanctions Evasion,” with Deputy Treasury Secretary Wally Adeyemo and chaired by Senator Sherrod Brown (D, OH) got underway at 10 a.m. today.

See:

    • The on-demand hearing broadcast here
    • Deputy Secretary Wally Adeyemo’s prepared testimony. Download.
    • Senators Thom Tillis (R, NC) and Bill Hagerty’s (R, TN) crypto illicit finance draft. Press release.
    • Monday’s Congressional letter from Senator Elizabeth Warren (D, MA) to House Financial Services Committee leaders regarding the stablecoin bill. Via Politico.

Takeaways from the hearing:

    1. This was a brisk 90-minute hearing.
    2. Not every member of Senate Banking chose to participate such as Sen. Jack Reed (D, RI) of CANSEE, Sen. Cynthia Lummis (D, WY) or Sen. Bill Hagerty (R, TN).
    3. Chair Brown did not given any inkling about whether he had his own bill addressing digital assets and illicit finance.
    4. Ranking Member Tim Scott (R, SC) gave an impassioned defense of digital assets saying that they had become a “scapegoat” of the Biden Administration especially given how traditional finance methods were far larger than crypto when it came to illicit finance.
    5. Democrats were fairly united behind Democratic leadership positioning that crypto assets need to be addressed more aggressively by Treasury.
    6. Deputy Secretary Adeyemo seemed to suggest that more “tools” for Treasury as it related to crypto assets was about taking preventative measures even though he admitted a larger illicit finance problem currently exists through traditional finance means.
    7. The tools were initially shared in a term sheet last November and were re-emphasized – at a high-level – in Adeyemo’s prepared testimony beginning with sanctions of “foreign digital asset providers.”
    8. During her Q&A time, Senator Warren chose to emphasize the House stablecoin bill versus her own anti-money laundering bill.  Her criticism of the House stablecoin effort makes sense in that it’s potential passage is more imminent than any crypto AML bill currently percolating across Congress. The stablecoin bill is seen as a potential threat to Dem leadership’s views about keeping crypto out of the U.S. financial system.
    9. At the hearing, the only Senate AML legislation focused on crypto that was discussed in any depth was by Sen. Tillis and his new bill – available as a discussion draft – co-sponsored by Sen. Hagerty.
    10. Coming out of this hearing, the next step perhaps lies with Treasury and its rulemaking capabilities. Treasury (and the Biden Administration) has “checked the box” and asked Congress for “tools” to address a crypto asset anti-money laundering threat. Now, it may do what it can with its own rulemaking which is outside of a Congress bogged down by a general election and politics.
    11. Nevertheless, Politico’s Eleanor Mueller reported on X that after the hearing, Chair Brown “says he is ‘hopeful’ he can introduce a bill soon that would give Treasury officials the new powers they asked for to prosecute illicit finance in crypto.”

Continue reading “Senate Banking Hearing On Illicit Finance Includes Stablecoin Focus”

Posted on

Digital Wallets and Financial Inclusion Reviewed by CRS

Digital Wallets

In a report from the non-partisan Congressional Research Service published on Monday, Congress gets a look at the digital wallet landscape as lawmakers consider the implications ranging from anti-money laundering (AML) laws to consumer privacy.

Titled “Digital Wallets and Selected Policy Issues” (PDF here), CRS analysts Paul Tierno and Andrew Scott outline the three types of cryptocurrency wallets beginning with custodial wallets which “execute digital asset transactions on the account holder’s behalf and log them on the custodian’s books (or ‘offchain’) rather than on the distributed ledger blockchain of the coin.”

What are likely of more interest to lawmakers are the other two options: non-custodial wallets and cold-storage wallets which offer more privacy and are perceived to be harder to track by authorities concerned about criminal enterprises whether by individuals, groups or nation states.

Policy considerations for Congress according to CRS: Continue reading “Digital Wallets and Financial Inclusion Reviewed by CRS”