Crypto

Treasury Warns Crypto Industry of Money-Laundering Risks in ‘Mixers’

The cryptocurrency industry must follow the U.S. Treasury Department’s anti-money-laundering and sanctions regulations to prevent bad actors from abusing platforms known as “mixers” to launder illicit funds, a senior official said.

Mixers, which enable users to exchange cryptocurrencies with relative anonymity, can be a way for illicit actors to obfuscate the ownership and movement of funds while making it harder for law enforcement to have visibility into the transfers, Elizabeth Rosenberg, the Treasury assistant secretary for terrorist financing and financial crimes, said in a speech Friday. 

Treasury official Elizabeth Rosenberg



Photo:

Alex Wong/Getty Images

“The challenge is that while these services often operate as money transmitters and thus have regulatory reporting obligations, they may deliberately operate in a noncompliant manner to make it more difficult for regulators and law enforcement to trace illicit funds,” she said in the speech delivered at the Crypto Council for Innovation, a Washington-based trade association that lobbies on behalf of the crypto industry. 

The Treasury Department in August sanctioned Tornado Cash, a currency mixer that allows users to commingle their funds to obfuscate ownership, accusing it of enabling the laundering of billions of dollars in virtual currency, including $455 million allegedly stolen by North Korean hackers. 

Crypto-industry participants have raised questions over the sanctions being imposed on Tornado Cash, a platform based on open-source, self-running software protocols. Some in the decentralized finance community have expressed concerns about what they see as excessive government pressure on the industry. Some, including

Coinbase Global Inc.

and industry advocacy groups, have sued the Treasury, alleging the action against Tornado Cash infringes on Americans’ privacy and First Amendment rights. 

Ms. Rosenberg said crypto-industry participants who submitted comments earlier this year on the Treasury’s plans to mitigate the illicit-finance risks of digital assets acknowledged that virtual-currency companies need to comply with anti-money-laundering and sanctions requirements.  She called on the crypto industry to take steps to prevent bad actors from abusing these platforms, adding that the department welcomes opportunities to engage with the industry to learn more about how these technologies can meet the Treasury’s anti-money-laundering and sanctions requirements while still promoting privacy for participants. 

“Our goal and intention is not to deter the development of technologies that provide privacy for virtual asset transfers,” she said. 

Write to Mengqi Sun at mengqi.sun@wsj.com

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