Treasury just withdrew crypto surveillance rule proposals long opposed by Coin Center
The “unhosted wallet” and mixer rules would have expanded reporting into our pockets
Today, the Department of Treasury is clearing two long-pending cryptocurrency rules off the books that Coin Center has fought against for years: the Financial Crime Enforcement Network’s (FinCEN’s) proposed rules targeting so-called “unhosted wallets” and cryptocurrency mixing. Both threatened to dramatically expand financial surveillance of cryptocurrency users, and Coin Center repeatedly urged Treasury to abandon them. Their withdrawal is a significant victory for financial privacy and for the principle that Americans should be able to use cryptocurrency directly without inappropriate government surveillance.
See the withdrawals here: Virtual Currency Mixing, Unhosted Wallets
In the waning days of the first Trump administration, FinCEN proposed new recordkeeping and reporting requirements for financial institutions handling certain transactions involving “unhosted wallets.” The term essentially referred to wallets not hosted by a regulated financial institution—in other words, wallets controlled directly by users rather than by a bank or cryptocurrency exchange.
The proposed rule would have required financial institutions to collect and retain information about counterparties to transactions involving unhosted wallets above $3,000 and to file reports with FinCEN for such transactions exceeding $10,000.
Coin Center objected to the proposal because it would have created a double standard for cryptocurrency transactions and encouraged the collection and retention of even more sensitive personal financial information, including information about people who were not even customers of the collecting institution, through the Bank Secrecy Act’s warrantless reporting regime.
In 2023, under the Biden administration, FinCEN proposed designating cryptocurrency mixing involving a foreign jurisdiction as a class of transactions of “primary money laundering concern.” The proposed rule would have imposed a “special measure” requiring covered financial institutions to report transactions when they knew, suspected, or had reason to suspect that the transaction involved cryptocurrency mixing within or involving a jurisdiction outside the United States. Those reports would have included extensive information about the transaction and the customers involved.
Again, Coin Center strongly objected and has continued calling for the proposal to be withdrawnin its entirety. The definition of mixing was extraordinarily broad, sweeping in common techniques used by ordinary cryptocurrency users to preserve their privacy. And because FinCEN acknowledged the difficulty of determining where a mixing transaction occurred, we argued that risk-averse financial institutions would inevitably report even purely domestic transactions, with potentially severe collateral consequences for innocent users, including account restrictions or closures.
We also argued that this approach exceeded the limits Congress placed on FinCEN’s Section 311 authority. The USA PATRIOT Act permits Treasury to designate a class of transactions only when those transactions are “within, or involving, a jurisdiction outside of the United States.” A rule that predictably swept in purely domestic activity would evade that limitation. And by designating an extraordinarily broad class of transactions rather than a particular foreign jurisdiction or institution, the proposal also raised serious due process concerns for Americans whose lawful transactions could be labeled a primary money laundering concern without individualized notice or an opportunity to be heard.
We are pleased to see Treasury respond to concerns raised by Coin Center and others and abandon these efforts to subject cryptocurrency users to still greater financial surveillance. The existing financial surveillance system is already deeply invasive of personal privacy and increasingly creates vast repositories of sensitive personal information vulnerable to abuse and disclosure.
These proposals may have lain dormant for years, but as long as they remained pending they left open the possibility that Treasury could revive an approach premised on collecting ever more information about lawful cryptocurrency transactions, regardless of whether that collection was narrowly tailored to genuine illicit-finance risks. Their official withdrawal finally closes that door. It is a major win for financial privacy.