Paradigm Files Comment Letter on FinCEN's Proposed Reporting Requirements for Mixers

January 22, 2024 | Rodrigo Seira, Alex Grieve

TLDR: Paradigm today filed a comment to FinCEN’s Notice of Proposed Rulemaking, which labels all “convertible virtual currency mixing”–defined broadly–as a primary money laundering concern, and seeks to impose a new reporting requirement on all related transactions.

Paradigm shares FinCEN’s concern that crypto, like any technology, can be abused by bad actors, and supports thoughtful action to curtail that risk where appropriate. However, the Proposed Rule is not the appropriate tool to address the stated concern. Its implementation would also negatively impact the national security interests of the United States by driving the development of blockchain technology offshore.

In attempting to address a legitimate risk, the Proposed Rule misses the mark by focusing on general application technology, instead of bad actors themselves. Rather than focusing reporting requirements on the bad actors that exploit otherwise legitimate technologies, the Proposed Rule focuses on a broad sway of rapidly developing technologies that, for legitimate reasons (scalability, execution optimization, etc.), can function to anonymize or mask the source, destination, or amount of a transaction. While the Proposed Rule seeks to create a broad new reporting regime, FinCEN already has the tools it needs. FinCEN’s suspicious activity report (“SAR”) regime requires financial institutions to identify and report transactions potentially linked to illicit finance and terrorism.

FinCEN should withdraw or materially curtail the Proposed Rule and, instead of creating a new reporting regime applicable to a broad range of general technologies and activities, use the tools it already has to directly address bad actors. This is an opportunity for FinCEN to work with the crypto industry on targeted rules that actually deal with the problems of illicit finance.