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New US Treasury Proposal: The End of Crypto Privacy?

25 December 2020 09:33, UTC
Veronika Malinboym

The US Treasury Financial Crimes Enforcement Network (FinCEN) finally put an end to the rumors surrounding the new regulations on cryptocurrency exchanges. What many viewed as Treasury’s Secretary, Steve Mnuchin, last shot at crypto is the new proposal to require registered crypto exchanges to verify the identity of a customer if the transaction exceeds 3,000 USD and the counterparty is using an unhosted or otherwise covered wallet.

The proposal has not yet been turned into legislation, and the stakeholders have 15 days to voice their opinion on it.

Will the new regulations change everything?

The proposal is already met with quite a lot of pushbacks, Many crypto owners and field experts claimed that the whole idea behind the cryptocurrency was to keep it decentralized and unregulated, and any attempt of introducing some working set of laws upon it would immediately threaten its existence.

Even before the full proposal was introduced, the rumors about it were causing enough weariness for the four members of the US Congress to step ahead and compile a letter to Secretary Mnuchin, demanding that Treasury halts its plans of introducing the new proposal. Congressmen and members of the Congressional Blockchain Caucus - Scott Perry, Tom Emmer, Ted Budd, and Warren Davidson - have all come together to underline that the proposal, if accepted, will not only threaten the idea behind cryptocurrency but also prevent US citizens from the meaningful participation in the technological innovations. Moreover, according to the Congressmen’s letter, the new regulation will make it harder for the Treasury Department to determine and tackle illicit activities - both in traditional banking and the digital ecosystem alike.

Not as radical as it seems

The rumors surrounding the new proposal had the interested parties fear the worst, however, in reality, it is not as radical as some would have expected. Instead, the new regulations would cover the existing Travel Rule and the existing 3,000 USD threshold for the registered entities interacting with self-hosted wallets. The threshold for registered entities would be 10,000 USD.

According to the new FinCEN anti-money laundering regulations, MSBs and banks will have 15 days (from the day that the reported transaction took place) to file a report with FinCEN. The information that will have to be provided includes:

  • The name and physical address of the financial institution’s customer
  • The name and physical address of each party involved in a transaction with the financial institution’s customer
  • The time when the transaction took place
  • A complete list of payment instructions received from the financial institution’s customer
  • The assessed value of the transaction in the US dollars
  • The type and the amount of LTDA or CVC used in the transaction
  • Any other relevant information, as per request by the FinCEN

It is not yet clear whether the proposed regulations will be implemented, or whether the pushback from the interested parties and legislators alike will be enough to stop it. However, one thing is for certain - with the adoption of some regulatory mechanisms, the nature of the cryptocurrency will never be the same again.