US House Introduces Bill to Temporarily Ban Cryptocurrency Mixers as a Measure to Combat Illicit Financial Activities
In a bid to strengthen regulations in the cryptocurrency landscape, Democratic representatives in the US House have proposed the Blockchain Integrity Act. The act aims to tackle the use of cryptocurrency mixers, which are often employed for illicit purposes. Led by Sean Casten and backed by fellow Democrats, the bill suggests implementing a two-year ban on the use of cryptocurrency mixers.
Cryptocurrency mixers function as pools that enable users to generate new addresses and withdraw funds without revealing the connection between the depositor and withdrawal addresses. This lack of transparency poses a significant challenge for law enforcement agencies in tracing the origins and destinations of funds and provides an avenue for unlawful activities.
Representative Casten highlights the use of cryptocurrencies in financing terrorist attacks worldwide, made possible through the utilization of digital asset mixers. He proposes this legislation as a temporary measure to prohibit crypto mixers, allowing for further study of the technology and its association with illicit purposes.
The primary objective of the proposed bill is to disrupt the flow of illicit funds and promote transparency. It would achieve this by prohibiting financial institutions, cryptocurrency exchanges, and registered money service businesses from accepting funds processed through a mixer. Violating the ban would result in civil penalties of up to $100,000, acting as a deterrent against facilitating mixer-related transactions.
Furthermore, the bill mandates that the Treasury Department compile a comprehensive report during the ban period, evaluating various aspects of mixer transactions. This report would assess involvement in illicit finance, legitimate use cases, law enforcement capabilities, and regulatory approaches adopted by other jurisdictions.
Cryptocurrency mixers have gained attention due to their role in obscuring transaction trails and preserving user anonymity. This has raised concerns among law enforcement agencies, who fear their exploitation by criminals for purposes such as money laundering and terrorist financing.
However, the bill faces political challenges, particularly within the Republican-majority House, where its passage remains uncertain. Democrats consider the initiative necessary to combat illicit finance, while Republicans express concerns about stifling innovation and the need for balanced regulatory oversight.
Apart from legislative efforts, US authorities have previously taken action against cryptocurrency mixers, exemplified by the Treasury’s targeting of Tornado Cash, a mixer service. Legal actions have also been initiated against mixer developers for money laundering and sanctions violations.
Moreover, lawmakers have expressed concerns about offshore-issued stablecoins like Tether, citing potential links to illicit finance. Stablecoins, which are pegged to fiat currencies, have gained popularity for facilitating transactions within the cryptocurrency ecosystem. As a result, issuer transparency and regulatory oversight have come under scrutiny.
The recent case of the Poloniex hacker, who laundered $3.4 million worth of Ethereum through the Tornado Cash mixer, highlights the use of crypto mixers by bad actors. A report by blockchain intelligence firm Chainalysis reveals a surge in the popularity of crypto mixers in 2022, with these services receiving more cryptocurrency than ever before. Illicit addresses accounted for 23% of funds sent to mixers in 2023, a significant increase from 12% in 2021. The rise in mixer usage is primarily attributed to a doubling of the share of funds deemed illicit, which has become the main driver for the growth in mixer activity.