Legal regulations in the cryptocurrency market continue to be a topic of discussion. Accordingly, crypto firms Coinbase, Paradigm, and Consensys have called on the United States Treasury to reconsider the proposed reporting processes for transactions involving crypto mixers. The crypto companies argue that these steps lack the necessary regulations and will lead to an exodus of resources.
Coinbase’s Noteworthy Step
On January 22, Coinbase sent a letter in response to the rulemaking process proposed by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which suggests implementing record-keeping and reporting requirements for convertible virtual currency mixing transactions by local financial institutions.
The firm argued that the proposed requirements are excessively broad, burdensome, and ineffective, presenting two main reasons to support their argument. Firstly, Coinbase claimed that there is no regulatory gap regarding crypto mixers, as regulated entities like Coinbase already file Suspicious Activity Reports (SARs) for illegal crypto mixing activities over $2,000. Secondly, the proposed rules would lead to the collection of data that is of little help to law enforcement, violate privacy, and centralize sensitive information, thereby risking security:
“This is not only a misuse of VASPs’ (Virtual Asset Service Providers) limited compliance resources; it is exactly the kind of mass reporting that Congress has explicitly discouraged.”
Coinbase’s Chief Legal Officer Paul Grewal stated on social media platform X on January 22:
“Congress said this kind of data dump is a waste of time and resources. We agree.”
Support for Coinbase Arrives Promptly
In October, FinCEN proposed record-keeping and reporting rules identifying cryptocurrency mixing as a primary money laundering concern area. FinCEN determined that the percentage of crypto transactions processed by mixers from potential illegal sources was increasing. It proposed that local financial institutions and agencies implement specific record-keeping and reporting requirements for transactions involving crypto mixers.
FinCEN suggested that the crypto industry present a detailed plan on how to implement data collection, storage, and reporting before finalizing any new rules.
Meanwhile, Coinbase is not alone in opposing the reporting requirements. Ethereum software solutions provider Consensys, in another letter dated January 22 to FinCEN, argued that a security solution balancing the protection of privacy needs to be found. The letter stated:
“If this must happen, please narrow it down enough so it does not cause real harm to the ecosystem and its users.”