Cryptocurrency exchange Coinbase has voiced strong concerns over the US Treasury’s proposed regulations regarding crypto mixing, stating that they fail to address regulatory gaps adequately and impose unnecessary data and resource burdens on crypto platforms.
Coinbase’s response to proposed rules
In a formal comment submitted to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), Coinbase argued that regulated crypto platforms are already subject to strict recordkeeping and reporting rules concerning suspicious activities and illicit crypto mixing.
Coinbase particularly criticized the proposed requirement for crypto platforms to report all crypto mixing activities, including those with legitimate purposes. The Exchange believes that such a broad reporting mandate is an inefficient use of companies’ resources.
The absence of a monetary threshold for recordkeeping and reporting also drew criticism from Coinbase. Paul Grewal, the Chief Legal Officer of Coinbase, emphasized that this lack of a threshold could result in the bulk reporting of non-suspicious transactions, which Congress has deemed a waste of time and resources.
First, we do not see a regulatory gap to be filled here. Exchanges like us are *already* required to investigate and report suspicious mixing activity connected to our platform. Why would Treasury now want us to report *non* suspicious activity? 2/6
— paulgrewal.eth (@iampaulgrewal) January 22, 2024
FinCEN’s proposed rulemaking
FinCEN’s proposed rulemaking, introduced in October, aims to enhance transparency around crypto mixing activities. This marks the first time FinCEN has exercised its authority under Section 311 to target a class of transactions of primary money laundering concern.
While acknowledging that illicit actors like North Korean hackers and Russian-based ransomware attackers have used crypto mixers for money laundering, FinCEN also recognized that crypto mixing can have legitimate and innovative applications.
Coinbase argued that instead of imposing mandatory bulk reporting rules, FinCEN should assist exchanges in meeting their existing obligations to report suspicious activities related to mixing. Coinbase believes that specific guidance from Treasury is more effective in addressing these issues.
To address these concerns, Coinbase suggested that FinCEN introduce a monetary threshold to prevent bulk reporting of small transactions. Furthermore, Coinbase recommended emphasizing recordkeeping over reporting to mitigate privacy and security risks associated with mandatory reporting.
In conclusion, Coinbase’s critique of the U.S. Treasury’s proposed rules on crypto mixing centers on the belief that the regulations lack efficiency and could lead to unnecessary data reporting burdens. Coinbase’s formal comment advocates for a more balanced approach that promotes transparency while acknowledging the legitimate applications of crypto mixing in the digital asset ecosystem.