Convertible virtual currency (CVC) mixing has increasingly come under scrutiny as part of U.S. national security policy. On October 19, 2023, the Financial Crimes Enforcement Network (FinCEN), an agency within the U.S. Department of the Treasury, put forward a notice of proposed rulemaking (NPRM). This NPRM aims to categorize CVC mixing — when it’s within or involves the United States — as a class of transactions of primary money laundering concern.
As reported by Morrison & Foerster LLP, this initiative is part of a broader endeavor to combat terrorist financing and other illegal transactions. CVC mixing, which involves intermingling ‘clean’ and ‘dirty’ cryptocurrency funds to obscure the transaction trail, has increasingly been recognized as a tool for illicit activities.
The FinCEN has taken this move following emerging international trends in the finance industry. Other global economic regulators have also started focusing on the use of cryptocurrencies in money laundering and other illicit activities. These regulators are increasingly calling for stricter regulations and due diligence in digital financial transactions involving cryptocurrencies. This is resulting in a call for increased cooperation and coordination among countries in regulating such transactions.
The potential implications of this rulemaking are significant. It is likely to shape the future of virtual currency regulations in the United States and possibly internationally. In the long term, the objective is to ensure that the cryptocurrency sector is properly regulated to prevent money laundering, terrorist financing, and other illegal financial transactions.
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