Key Takeaways

• Crypto mixers and privacy coins may soon be the target of American regulations.
• The 2024 National Defense Authorization Act (NDAA) features an addendum that addresses anonymous transactions and illegal conduct.
• The United States Senate has approved the $886 billion deal.

On the evening of 27 July, the United States Senate approved the $886 billion 2024 National Defense Authorization Act (NDAA) containing a clause that targets institutions trading in cryptocurrencies, crypto mixers, and coins that increase anonymity.

The amendment  was developed using provisions from two laws: the Responsible Financial Innovation Act, which provides safeguards to stop future events like the collapse of the FTX crypto exchange happening, and the Digital Asset Anti-Money Laundering Act, which was first presented in 2022.

Establishing Crypto Standards

The amendment also contains elements from the 2023 Lummis-Gillibrand Responsible Financial Innovation Act and the 2022 Digital Asset Anti-Money Laundering Act proposed by Senators Elizabeth Warren and Roger Marshall. It calls for the Secretary of the Treasury to “establish examination standards for crypto assets,” which would enable examiners to assess risk and guarantee adherence to anti-money laundering and anti-sanctions legislation more accurately.

Additionally, it mandates that the Treasury Department carry out research on “combating anonymous crypto asset transactions,” including the use of crypto mixers, which are occasionally utilized to muddle assets.

In a tweet, Senator Cynthia Lummis said: “Cracking down on illicit finance in the crypto asset industry is essential for weeding out bad actors and ensuring crypto assets are not used to evade sanctions and fund terrorism.”

It is not uncommon for US legislators to include modifications to a measure that aren’t necessarily linked to its main subject. Both chambers of Congress must now agree on a version of the NDAA that can pass both chambers after the House passed its version of the bill earlier this month. The NDAA is seen as a must-pass piece of legislation.

The Financial Innovation Technology for the 21st Century Act, which would establish a federal regulatory framework for cryptocurrency in the US, was advanced earlier on Thursday by the House Agriculture Committee. On Wednesday, the House Financial Services Committee approved the measure in its current form.

What are Crypto Mixers?

A cryptocurrency mixer is a service that combines the cryptoassets of numerous users to mask the sources and owners of the funds. This level of privacy would ordinarily be challenging to attain due to the transparency of Bitcoin, Ethereum, and the majority of other public blockchains.

Mixers gather, pool, and shuffle cryptocurrencies that multiple users have placed in a pseudo-random manner. The money is then withdrawn, minus a tiny service charge, to fresh addresses controlled by each user.

Most mixers allow users to plan their withdrawals in randomized amounts at randomized intervals, which makes it more difficult to track the deposited funds. Others make an effort to conceal the fact that a mixer is even being used; they often accomplish this by changing the transaction cost and the withdrawal address type.

Despite being used by criminals, crypto mixers are generally not officially forbidden.

According to the Financial Crimes Enforcement Network (FinCEN), the Bank Secrecy Act (BSA) requires that people and centralized enterprises providing custodial mixing services register as money transmitters and adhere to three important requirements:

• Join FinCEN.
• Maintain a know-your-cusmter (KYC) and anti-money laundering compliance program.
• Adhere to all applicable reporting and record-keeping requirements.

Tornado Cash Sanctioned for Money Laundering

The amendment calls the development of cryptography examination criteria. This would aid risk assessments and ensure that companies are abiding by relevant money laundering and penalty laws.

In addition, it forces the US Treasury Department to conduct a study with the goal of stifling anonymous cryptocurrency transactions. This involves using cryptocurrency mixers, such as Tornado Cash, to conceal transactions.

The Treasury imposed sanctions on Tornado Cash in 2022, making United States residents unable to use it. While the mixer was intended to help users anonymize their cryptocurrency transactions, bad actors frequently used it to protect illicitly obtained cryptocurrency from hackers and vulnerabilities. The mixer allegedly failed to enact safeguards that forbid money laundering by criminals operating in the area, according to the Treasury Department.

The NDAA also contains orders American businesses to disclose their investments in China. Senator Bob Casey claimed that the government needs this information in order to know how much “critical technology” is being given to its “enemies”.