Democratic representatives have introduced the US Blockchain Integrity Act to tighten regulation in the cryptocurrency sphere. The bill aims to crack down on cryptocurrency mixers, often used for illegal financial activities. The proposed bill, led by Sean Casten and supported by other Democrats, seeks a two-year ban on cryptocurrency mixers.
A cryptocurrency mixer serves as a pool, allowing users to generate new addresses and withdraw funds without revealing the link between the depositor and the withdrawal addresses. This opacity poses a serious challenge to law enforcement, hindering efforts to track the origin and destination of funds and creating room for illegal activities.
The proposed legislation aims to disrupt the flow of illicit funds and promote transparency by prohibiting financial institutions, cryptocurrency exchanges and registered money service companies from accepting funds processed through the mixer. Violations of this ban will result in civil penalties of up to $100,000 as a deterrent to facilitating mixer-related transactions.
In addition, the bill requires the Treasury Department to produce, during the period of the ban, a comprehensive report assessing various aspects of blender transactions, including involvement in illicit financing, instances of legitimate use, enforcement capabilities and regulatory approaches in other jurisdictions.
Cryptocurrency mixers have taken center stage due to their role in obfuscating transaction traces and ensuring user anonymity, which has raised alarm among law enforcement agencies over their use by criminals for money laundering and terrorist financing.
But the proposed ban faces political challenges, especially in a chamber with a Republican majority, where its passage remains uncertain. While Democrats favor the initiative as a necessary measure to combat illicit financing, Republicans have expressed concerns about stifling innovation and the need for balanced regulatory oversight.
In addition to legislative efforts, US authorities have already taken action against cryptocurrency mixers, as exemplified by the Treasury Department’s attack on the Tornado Cash mixer service and legal action against mixer developers for money laundering and sanctions violations.
Moreover, lawmakers have raised concerns about stablecoins issued overseas, such as Tether, citing potential links to illicit financing. Stablecoins are linked to fiat currencies and have gained popularity for facilitating transactions in the cryptocurrency ecosystem, prompting scrutiny of issuer transparency and regulatory oversight.
Crypto mixers as a tool of fraudsters
Hacker Poloniex, known for last year’s exchange security breach, recently ran $3.4 million worth of Ethereum through a Tornado Cash mixer to launder stolen funds. A report by blockchain analysis firm Chainalytic reveals a surge in the popularity of cryptocurrency mixers in 2022, with these services receiving more cryptocurrency than ever before. According to the report, illicit addresses accounted for 23% of funds sent to mixers in 2023, a significant jump from 12% in 2021. The increase in mixer usage is attributed to a doubling of the share of funds deemed illegal, which is now a major factor in the growth of mixer activity.
