The United States Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, has proposed designating cryptocurrency mixing as an area of “primary money laundering concern” following Hamas’ attack on Israel.

In an Oct. 19 notice, FinCEN said it had assessed that “the percentage of CVC [convertible virtual currencies] transactions processed by CVC mixers that originated from likely illicit sources is increasing." FinCEN proposed requiring domestic financial institutions and agencies to “implement certain recordkeeping and reporting requirements” for transactions involving crypto mixers.

“FinCEN considered issuing a rule pursuant to section 311 [of the U.S. Patriot Act] that would have been narrowly scoped to address terror finance involving Hamas and ISIS and/or North Korea-sponsored and -affiliated actors,” said the notice. “However, FinCEN determined that such a narrow approach would be insufficient to address the relevant risks.”

Deputy Treasury Secretary Wally Adeyemo reportedly said the addition of crypto mixers to entities sanctioned by the U.S. government was aimed at combating digital assets being exploited by “state-affiliated cyber actors, cyber criminals, and terrorist groups.” He cited Hamas — the group responsible for the Oct. 7 attack on Israel — and the Palestinian Islamic Jihad — the organization Israel has blamed for an Oct. 17 attack on a Gaza hospital — illicitly using crypto. 

The notice followed concerns voiced by U.S. lawmakers surrounding terrorist organizations allegedly being financed by crypto. On Oct. 17, more than 100 members of Congress called on the administration of U.S. President Joe Biden to “swiftly and categorically act to meaningfully curtail illicit crypto activity.” Treasury officials also added a Gaza-based crypto operator allegedly tied to Hamas to its list of Specially Designated Nationals on Oct. 18.

Related: Advocacy groups push back against Sen. Warren linking crypto with terrorism

In August 2022, Treasury’s Office of Foreign Asset Control effectively barred U.S. residents from using Tornado Cash after adding several crypto addresses connected to the mixer to its list of Specially Designated Nationals. The department’s action prompted a lawsuit brought by six individuals backed by crypto exchange Coinbase. In August 2023, a federal judge ruled on a summary judgment saying the Treasury Department had operated within its authority.

According to FinCEN, members of the public will have 90 days to comment on the crypto mixer proposal following publication in the Federal Register. The government department will likely review all feedback before considering whether to enact the proposed crypto mixer policy.

Magazine: Tornado Cash 2.0: The race to build safe and legal coin mixers