FinCEN Proposes New Regulation to Enhance Transparency in Convertible Virtual Currency Mixing and Combat Terrorist Financing

The Financial Crimes Enforcement Network, FinCEN, has announced and meanwhile published in the Federal Register a proposed new reporting rule under Statutory Instrument 31 CFR Part 1010, FinCEN’s reporting rule, to require the reporting of transactions involving convertible virtual currencies (CVCs) and CVC mixers by financial institutions. CVC mixing is thereby defined by FinCEN as „the facilitation of CVC transactions in a manner that obfuscates the source, destination, or amount involved in one or more transactions, regardless of the type of protocol or service used […]“. The proposed rule comes as a response to the emerging money laundering and financing of terrorism threats posed by CVCs and CVC mixers.
Specifically, the new rule would require financial institutions to report financial transactions involving CVCs where CVC mixers are used or are suspected to be used outside the United States, unless explicitly exempt from this requirement. The data to be included in the reports include details about the covered transaction, such as the amount of CVC, type of CVC, CVC mixer used (if known), wallet addresses, transaction hash, date of transaction, IP addresses, and other relevant details. Furthermore, financial institutions would have to provide detailed information about the customer associated with each covered transaction, including its full name, date of birth, address, email, phone number, and identification details.
The report would have to be filed with FinCEN within 30 calendar days from the date of detection following FinCEN’s prescribed procedures. Furthermore, institutions would be obliged to document their compliance with these regulations.
To round it off, the proposed rule would explicitly state that „CVC mixing does not include the use of internal protocols or processes to execute transactions by banks, broker-dealers, or money services businesses, including virtual asset service providers that would otherwise constitute CVC mixing“ provided that these institutions retain records on these protocols and processes and present them to FinCEN upon request.