Swan Bitcoin Cuts Ties with Users Engaging in Bitcoin Mixing: A Response to Regulatory Pressures
Californian Bitcoin services platform, Swan Bitcoin, has announced it will terminate accounts of users interacting with coin mixing services. This follows a position taken by Swan’s banking and custodial partners who are distancing themselves from clients who engage directly with bitcoin mixing services like Wasabi and Samourai. Users now run the risk of having their accounts terminated should they deposit or withdraw funds directly to or from these specific services.
Swan Bitcoin Responds to Financial Partners Measures
Despite opposition to these newfound regulations, Swan Bitcoin has acknowledged the stance taken by its financial partners. These partners are reacting to a proposed rule by the Financial Crimes Enforcement Network (FinCEN) that aims to impose new responsibilities on institutions dealing with transactions involving mixing services. Swan, while not directly supporting these measures, understands the necessity to align with qualified custodians and banks for the facilitation of customers.
Overcoming Crypto-Scepticism in Traditional Banks
Yan Pritzker, the co-founder and CTO of Swan Bitcoin, is supportive of coin mixing as a privacy service but is cognizant of the reluctance of most banks to engage with anything related to cryptocurrency. Pritzker indicated that financial institutions are compelled to adhere to rules and guidelines from not just FinCEN but other regulating bodies as well.
FinCEN’s Call for Heavier Regulations
FinCEN has argued for more stringent regulations on crypto mixing services, citing national security concerns. The proposed regulations would classify the mixing of virtual currencies as a “primary money laundering concern,” pointing to services like Tornado Cash as potential risks. FinCEN has named malicious actors, such as Hamas and Russian criminal organizations, as motivation for increased transparency and compliance measures.
Requirements Proposed for Crypto Tumblers
In the wake of these proposed rules, financial institutions, as well as operators of crypto tumblers, would need to ensure the maintenance of records and reports related to transactions involving digital asset tumblers. The requirement extends to stringent know-your-customer (KYC), anti-money laundering (AML), and combating the financing of terrorism (CFT) regulations.
FinCEN Director, Andrea Gacki, has emphasized the role of mixing services in facilitating illegal activities, further supporting the call for heightened surveillance.
Crypto Advocacy Accepted Defeat in Court
The recent stand by Swan and its financial partners followed a court decision siding with the U.S. Treasury. When crypto industry advocates such as Coin Center challenged the Treasury’s sanctions on Tornado Cash, a federal judge asserted the Treasury’s authority to sanction entities involved with foreign interests. The decision was made under the International Emergency Economic Powers Act (IEEPA), hammering yet another nail in the coffin for the freedom of mixing services.
This complex situation shows the progressive tightening of regulations on mixing services, and by extension, the entire cryptocurrency industry, as traditional institutions grapple with the risks and demands of this new digital frontier.