Treasury Secretary Janet Yellen used special measures provided to her as a result of 9/11 and the Patriot Act to issue a notice of proposed rulemaking (NPRM) that would classify virtual currency mixing as a class of transactions of primary money laundering concern. The public will have 90 days to respond once published in the Federal Register to this special measure that would require “domestic financial institutions and domestic financial agencies to implement certain record keeping and reporting requirements relating to transactions involving convertible virtual currency (CVC) mixing.”
Since Israel was first attacked by Hamas, there has been a great deal of scrutiny as to whether cryptocurrency was used to help finance the attack. Amid this concern, Senator Elizabeth Warren (D-Mass.), along with 100 lawmakers from the House and Senate, pressed the White House and Treasury in a letter regarding the efforts underway to prevent Hamas from using cryptocurrency as a financial resource. On Wednesday October 18th, Treasury issued sanctions against Hamas that included one crypto-asset exchange. Hamas announced back in April 2023 that it was no longer using bitcoin due to financial privacy donor concerns as Israeli officials had been successful in disrupting as least some of the financing efforts.
The unusual use of this authority cites section 311 of the USA Patriot Act that allows the Secretary of the Treasury authority, upon finding reasonable grounds exist, to conclude one or more transactions outside of the United States is of primary money laundering concern, and to require domestic financial institutions and domestic financial agencies take certain “special measures.”
Secretary Yellen is required to consider certain factors in making such a determination that will include conferring with the Secretary of State and Attorney General, as well as considering information deemed relevant to the Treasury Secretary. In that FinCEN has been delegated the authority to evaluate classifying these mixers as money laundering tools, the public notice demonstrates the type of information that will be considered prior to making this classification.
As justification for FinCEN’s finding that transactions involving convertible virtual currency (CVC) mixing transactions are of primary money laundering concern, the NPRM cites, “frequently used by criminals and state actors to facilitate a range of illicit activity, including, but not limited to, money laundering, sanctions evasion and WMD proliferation by the Democratic People’s Republic of Korea (DPRK or North Korea), Russian-associated ransomware attacks, 13 and illicit darknet markets.” According to FinCEN, the percentage of transactions involving CVC mixing that are illicit is increasing as well.
Should Yellen decide to use this special measure, the result would be requiring “covered financial institutions to implement certain recordkeeping and reporting requirements on transactions that covered financial institutions know, suspect, or have reason to suspect involve CVC mixing within or involving jurisdictions outside the United States.” The implementation of such a special measure would be done by the Treasury Secretary consulting with the Federal Reserve, other banking regulators, the Secretary of State, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the National Credit Union Administration Board, as well as any other agencies that Yellen would decide to consult.
