FinCEN withdraws a crypto mixer rule that would have taken 1.47 million compliance hours a year

FinCEN withdrew its first-ever proposal to treat an entire class of transactions, international crypto mixing, as a primary money-laundering concern.

FinCEN is withdrawing the proposal "as part of the Trump administration's deregulatory agenda," according to a Monday notice.

The withdrawal notice cites concerns from commenters that the rule would have had "a chilling effect on legitimate activity" and placed "a large reporting burden on covered financial institutions."

Under the 2023 proposal, banks and other covered institutions would have filed a report on any crypto transaction they knew or suspected involved foreign mixing; each report would have listed wallet addresses, transaction hashes, IP addresses and identities of the customers involved.

The rule would have flipped the default for banks "from determining when a CVC transaction is reportable to determining when it is not reportable," according to the proposal.

About 15,000 institutions would have filed the mixer reports, spending an average of 98 hours a year on them, or 1.47 million hours in total, according to FinCEN's estimate in the proposal.

Only one bank trade group, the Independent Community Bankers of America, submitted a comment letter, according to American Banker's review of the comment docket, and it argued that the proposed rule didn't go far enough.

FinCEN expected crypto exchanges and similar firms to face the smallest added burden because the rule "imposes the least adaptation from current compliance practices and processes" for them.

The largest added burden would fall on institutions with crypto exposure whose compliance programs weren't built around crypto, which FinCEN said in the proposal "may characterize certain banks."

Spotting indirect exposure, where a mixer sits several transactions upstream of a customer's deposit, could require analytics tools costing "in excess of tens of thousands of dollars per license," according to the proposal.

FinCEN said in the proposal that banks "are already heavily regulated and typically already feature robust monitoring and compliance programs," so the impact on them "might still be low."

Banks already had the machinery to file reports at scale, and crypto firms already had the tools to trace funds across blockchains.

An average of 98 hours a year is a little under two hours a week per institution.

FinCEN's withdrawal notice quotes a White House report as saying "the Trump Administration supports the ability of lawful users of digital assets to privately transact on a public blockchain" on page 100; the quote does not appear on page 100 or anywhere else in the report, nor in the accompanying press release or fact sheet.

A Treasury spokesperson, responding to questions sent to FinCEN, did not answer a question about the misquote on the record.

The White House report says illicit actors such as North Korea and ransomware gangs "continue to use mixers to obfuscate and launder funds," but "lawful users of digital assets may leverage mixers to enable financial privacy when transacting through public blockchains."