US indirectly targets anonymity-focused crypto

The most notable thing about cryptocurrency exchange Huobi’s decision to delist seven anonymity-focused “privacy coins” starting Monday (Sept. 19) is that it comes two months only after acquiring a license allowing it to enter the American market.

On July 5, Huobi announced that its brokerage subsidiary HBIT had received an MSB license from the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. This would allow the world’s top 10 exchanges to return to the United States almost three years after it abruptly closed its American subsidiary, HBUS.

See also: Privacy Coins: A Blow For Freedom Or A Boon For Crime?

Although the Seychelles-based and China-founded exchange did not say the delistings were a condition of the license, in a statement in Chinese last week it called the move “progress in the compliance process. .creating a good compliance foundation for the company to conduct digital currency business in the United States in the future.

In the English delisting announcement, he simply said the decision was “in line with the latest financial regulations”. Huobi’s actions affected the three biggest privacy coins, Monero (XMR), Zcash (ZEC) and Dash (DASH), as well as Firo (FIRO), Decred (DCR), Verge (XVG) and Horizen (ZEN) .

Agencies on the attack

However, the United States has already cracked down on privacy coins in other ways, with the Internal Revenue Service handing out contracts worth more than $1 million to fund attempts to break the anonymity of the main privacy coin, monero. And in June 2018, the Secret Service asked Congress for legislation targeting privacy exhibits, Forbes reported.

And other countries have been more direct. Japan banned them in 2019, and a South Korean exchange pair, Bitthumb and Upbit, even pulled Litecoin – one of bitcoin’s earliest competitors as a payment currency – in June after adding privacy features, Decrypt reported.

The move also comes less than six weeks after another Treasury Department enforcement unit, the Office of Foreign Assets Control (OFAC), imposed groundbreaking sanctions on Tornado Cash, a crypto mixing service that makes for normal cryptocurrencies like bitcoin and ether what privacy coins seek to do: Make it harder, if not impossible, to track cryptocurrency transactions.

Read more: Crypto Crime Series: When privacy matters, crypto users turn to mixing services

OFAC blacklisted the site after finding evidence that North Korean hackers used it to launder crypto funds, which the rogue state allegedly uses to support its nuclear program. It is the first time that penalties have been imposed on computer code – long legally considered as writing – rather than on a person or a company. Coinbase, a Nasdaq-listed crypto exchange, is funding a lawsuit to challenge the listing.

See also: With Tornado Cash Sanctions, the Feds Seek to Lift the Veil of Crypto Anonymity

See also: Coinbase Supports Lawsuit Against Treasury Over Tornado Cash Sanctions

Railing search

Beyond that, last week’s Treasury Department report on its Action plan to tackle the risks of illicit financing of digital assets“, noted that “criminals are increasingly using anonymity-enhancing technologies, such as enhanced cryptography [privacy coins]mixers or operation on an opaque blockchain.

See here: Justice Department Signals Intent to Crack Down on Crypto Crime

In that report, written in response to President Biden’s executive order on a regulatory framework for cryptocurrencies, the Treasury Department also said that while mixers “often operate as money transmitters and therefore have regulatory reporting obligations , they may deliberately operate in a non-compliant manner”. to make it harder for regulators and law enforcement to trace illicit funds.

Then there’s a line in the Request for Comments on the Responsible Development of Digital Assets website that the Treasury Department plans to open on September 20.

In the Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) section, one of the questions asks: “What additional measures should the U.S. government consider to address illicit financing risks related mixers and other anonymity-enhancing technologies?

Then there is the September 16 report from the Department of Justice on The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets in which he indicates that darknet markets use “an increasing variety of cryptocurrencies, including anonymity-enhanced cryptocurrencies or so-called ‘privacy coins,’ as do other criminals using ” cryptocurrency and other digital assets to launder money, facilitate tax evasion and evade sanctions.”

Read also : Justice Department Signals Intent to Crack Down on Crypto Crime

Between the Treasury Department’s sanctions and comments in its reports, and the Justice Department in its own version of the report written in response to Biden’s executive order, it’s hard not to see Huobi’s delisting as a sign of things. coming.

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