Swan Bitcoin, a California-based Bitcoin services platform, announced recently that it would terminate accounts of users directly interacting with mixing services.
In a statement released over the weekend, Bitcoin-only accumulation platform Swan issued a warning to users engaging with Bitcoin mixing services, cautioning them that their accounts may face termination due to increased scrutiny from banks and custodians.
According to Swan, its banking and custodial partners will cease servicing clients directly interacting with bitcoin mixing services such as Wasabi, Samourai, and similar platforms. Users depositing or withdrawing funds directly to or from crypto mixing services risk having their accounts terminated by Swan’s financial partners, as per the warning.
Swan, while vehemently opposing the proposed rules, acknowledged that its financial institution partners have taken a stance against mixers.
This alteration comes due to the pressure exerted by Swan Bitcoin’s banking partners, responding to the recent introduction of a proposed rule by the Financial Crimes Enforcement Network (FinCEN). The proposed rule aims to impose new responsibilities on institutions facilitating transactions that include mixing services.
Yan Pritzker, co-founder and CTO of Swan Bitcoin, explained that while the company supports coin mixing as a privacy service, connecting with qualified custodians and banks is necessary for on-ramping customers with fiat. Rather than undertaking investigative work, the company opts to avoid risks entirely.
Recently we announced that some of the banks and qualified custodians that Swan works with have been freezing or terminating accounts involved in mixing Bitcoin. Today I’d like to help the industry get perspective on what’s going on, and what steps we are taking to do the right…
— Yan | swan.com (@skwp) November 11, 2023
Pritzker attributed this to the fear prevailing in the banking sector, with most banks reluctant to engage with anything related to crypto.
Pritzker also highlighted the challenge of processing USD in the United States without involving a bank or Money Services Business, pointing out that all financial institutions are subject to rules and guidelines from FinCEN, the Financial Action Task Force, and other unelected bodies.
“Theoretically, this behavior is expected and obvious. Why should a bank have to do extra work to prove innocence when the government has been telling them for years that they don’t want to see mixing? “
FinCEN Proposes Stricter Regulations on Crypto Mixing Services, Citing National Security Concerns
In late October, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed regulatory measures to bring convertible virtual currencies (CVCs) under existing anti-money laundering regulations.
If implemented, these rules would categorize the mixing of convertible virtual currencies as a “primary money laundering concern,” impacting services like Tornado Cash and other providers using basic privacy protocols.
The proposal is a response to concerns about malicious actors exploiting crypto-mixing services for money laundering.
FinCEN specifically cited groups like Hamas, Russian criminal organizations, and the Democratic People’s Republic of Korea as examples, emphasizing recent incidents involving these groups as a motivation for increased transparency and compliance measures.
Under the proposed rules, financial institutions would need to maintain records and reports related to transactions involving digital asset tumblers.
This implies that operators of crypto tumblers would be subject to know-your-customer (KYC), anti-money laundering (AML), and combating the financing of terrorism (CFT) requirements.
FinCEN Director Andrea Gacki, in October, emphasized the critical role mixing services play in facilitating illegal activities, stating that they enable ransomware, rogue state actors, and other criminals to fund unlawful activities and obscure the flow of illicit gains.
In a recent development, a federal judge sided with the U.S. Treasury after Coin Center and other crypto industry advocates filed a lawsuit challenging the Department’s sanctions on Tornado Cash, a cryptocurrency mixing service.
The plaintiffs, led by Coin Center, argued that the Treasury overstepped its authority by imposing sanctions on Tornado Cash, which they contended was merely a piece of computer code.
However, the court dismissed this perspective, affirming that under the International Emergency Economic Powers Act (IEEPA), the Treasury possesses the authority to sanction any entity in which foreign interests are involved.
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