FinCEN Issues Proposed Rule to Enhance Transparency in Virtual Currency Mixing | Practical Law

FinCEN Issues Proposed Rule to Enhance Transparency in Virtual Currency Mixing | Practical Law

The US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would require domestic financial institutions and financial agencies to implement certain recordkeeping and reporting requirements involving convertible virtual currency (CVC) mixing. The proposal is intended to increase transparency around CVC mixing to combat its use in terrorist financing.

FinCEN Issues Proposed Rule to Enhance Transparency in Virtual Currency Mixing

Practical Law Legal Update w-041-1509 (Approx. 5 pages)

FinCEN Issues Proposed Rule to Enhance Transparency in Virtual Currency Mixing

by Practical Law Finance
Published on 26 Oct 2023USA (National/Federal)
The US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would require domestic financial institutions and financial agencies to implement certain recordkeeping and reporting requirements involving convertible virtual currency (CVC) mixing. The proposal is intended to increase transparency around CVC mixing to combat its use in terrorist financing.
On October 19, 2023, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN)) issued a notice of proposed rulemaking (NPR) that would require domestic financial institutions and domestic financial agencies to implement certain recordkeeping and reporting requirements related to transactions involving convertible virtual currency (CVC) mixing. The proposal is designed to increase transparency in CVC mixing activities and aggressively combat illicit CVC use by terrorist groups.
The proposed recordkeeping and reporting obligations would require covered financial institutions to report the following information when they know, suspect, or have reason to suspect a CVC transaction involves the use of CVC mixing within or involving a jurisdiction outside of the US:
  • The amount of any CVC transferred, in both CVC and US dollar equivalent when the transaction was initiated.
  • CVC type.
  • The CVC mixer used, if known.
  • CVC wallet address associated with the mixer.
  • CVC wallet address associated with the customer.
  • Transaction hash, which will allow an investigation of the specific transaction and assist in the identification of specific wallet addresses involved in the transaction as well as more specific transaction meta data such as the date and time the transaction was completed.
  • Date of transaction.
  • IP addresses and time stamps associated with the covered transactions.
  • A description of the activity observed by the financial institution, including a summary of investigative steps taken, additional context of the behavior, or other information that will aid the investigation.
In addition, FinCEN proposes to collect the following information regarding the customer associated with the covered transaction:
  • Customer's full name.
  • Customer's date of birth.
  • Email address associated with any and all accounts from which or to which the CVC was transferred.
  • Unique identifying number.
CVC is defined as a medium of exchange that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. CVC mixing involves the facilitation of CVC transactions in a way that hides the source, destination, or amount involved in one or more transactions. CVC mixing transactions are most commonly done through the use of CVC mixers, which can either:
  • Pool or aggregate CVC from multiple sources.
  • Split and amount into multiple transactions.
  • Leverage code to coordinate, manage, or manipulate the structure of the transaction.
  • Create and use single-use wallets, addresses, or accounts to send CVC.
  • Exchange between types of CVC or other digital assets.
  • Facilitate user-initiated delays in transactional activity.
Public comment on the NPR must be received by January 22, 2024.