US takes indirect aim at anonymity-focused crypto
The most notable thing about cryptocurrency exchange Huobi’s decision to remove seven anonymity-focused “privacy coins” from Monday (September 19) is that it comes just two months after it was granted a license allowing it to enter the US 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 top-10 global exchange to return to the US nearly three years after its US affiliate, HBUS, was abruptly shut down.
See also: Privacy Coins: Blow for Freedom – or Boon for Crime?
While the Seychelles-based exchange founded in China has not said the delistings were a condition of the license, in a Chinese-language statement last week it called the move “advancement in the compliance process … creates a good compliance basis for companies to conduct digital currency-related business in the United States in the future.”
In the English announcement of the delisting, it said only that the move was “in accordance with the latest economic regulations.” Huobi’s actions affected the three largest 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 US has previously cracked down on privacy coins in other ways, with the Internal Revenue Service handing out contracts worth more than $1 million to fund efforts to break the anonymity of the leading privacy coin, monero. And in June 2018, the Secret Service asked Congress for legislation targeting privacy coins, Forbes reported.
And other countries have been more direct. Japan banned them back in 2019, and a pair of South Korean exchanges, Bitthumb and Upbit, even removed litecoin — one of bitcoin’s earliest competitors as a payment currency — in June after it added 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-mingling service that does for mainstream cryptocurrencies like bitcoin and ether what privacy coins seek to do: Do it more difficult, if not impossible, to trace cryptocurrency transactions.
Read more: Crypto Crime Series: When Privacy Matters, Crypto Users Turn to Blending Services
OFAC blacklisted the site after it discovered evidence that North Korean hackers had used it to launder crypto funds, which the rogue state is believed to be using to support its nuclear program. It is the first time sanctions have been imposed against computer code – long legally seen as writing – rather than a person or business. Nasdaq-listed crypto exchange Coinbase is funding a lawsuit challenging its listing.
See also: With Tornado Cash Sanctions, Feds seek to lift Crypto’s veil of anonymity
See also: Coinbase backs suit against Treasury over Tornado Cash sanctions
Looking for railings
Beyond that, last week’s Treasury report on its “Action plan for dealing with illegal financing risk in the case 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.”
Look here: The Ministry of Justice signals its intention to crack down on crypto-crime
In that report, created in response to President Biden’s executive order on a regulatory framework for cryptocurrencies, the Treasury Department also said that while mixers “often act as money transmitters and thus have regulatory reporting obligations, they may knowingly operate in a non-compliant manner to do so more difficult for regulators and law enforcement to track illicit funds.”
Then there’s a line in the request for comments on the Safeguarding 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 steps should the US government consider to address the illicit financial risks associated with mixers and other anonymity-enhancing technologies?”
Then there is the Ministry of Justice’s report from 16 September on “The role of law enforcement in detecting, investigating and prosecuting criminal activity related to digital assets“ which states that darknet markets use “a growing range of cryptocurrencies, including anonymity-enhanced cryptocurrencies or so-called ‘privacy coins'”, as do other criminals who use “cryptocurrency and other digital assets for money laundering, facilitating tax evasion and evading sanctions.”
Also read: The Ministry of Justice signals its intention to crack down on crypto-crime
Between the Treasury Department’s sanctions and comments in the reports, and the Justice Department’s own version of the report created in response to Biden’s executive order, it’s hard not to see Huobi’s delisting as a sign of things to come.
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