BitcoinBusiness

FinCEN Penalizes Bitcoin Mixer for Anti-Money Laundering Violations

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Court documents released on October 19th indicate that the U.S. Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury, is penalizing Larry Dean Harmon for Bank Secrecy Act and anti-money laundering law violations. 

Harmon, based in Ohio according to the document, is the operator of two Bitcoin mixer services, Helix and Coin Ninja. Mixers are services and software that, as the name suggests, mix unspent transaction outputs in order to obfuscate their origin and thereby provide enhanced privacy to senders and receivers.

FinCEN is asking for Harmon to pay a $60 million civil money penalty as his mixers are in "violation of the Bank Secrecy Act (BSA) and its implementing regulations." The Bank Secrecy Act is a requirement of U.S.-based financial institutions to report transactions and provide certain information to prevent money laundering. 

FinCEN alleges that Harmon ran Helix and Coin Ninja as unregistered money services businesses. He is thus being prosecuted in the U.S. District Court for the District of Columbia on "charges of conspiracy to launder monetary instruments and the operation of an unlicensed money transmitting." 

The regulator stated in 2013 and in 2019 statements that any U.S. exchangers of virtual currency are money transmitters are supposed to abide by the BSA. Mixers fit into that category.

Over the six years that Harmon was operating the mixers, at least 1,225,000 transactions were conducted that amounted to $311 million worth of bitcoin transferred, FinCEN writes. The regulator suggests that users of the mixers included "narcotics traffickers, counterfeiters, and fraudsters, as well as other criminals." 

FinCEN worked with the U.S. Department of Justice, the Federal Bureau of Investigation, and the Internal Revenue Service Criminal Investigation division on this operation. The Coin Ninja domain has likely be seized by the government. 

Bitcoin Mixers Targeted by Regulators

This is the latest in a string of moves against Bitcoin mixers and related technologies such as privacy-enhanced cryptocurrencies.

The BTC Times reported earlier this month that the European Union's Europol, a supernational law enforcement agency, released a report on Internet crime that highlighted mixers as a technology to watch.

Europol specifically highlighted "privacy-enhanced wallet services using coinjoin concepts (for example Wasabi and Samurai wallets [sic])," along with centralized mixer services. Harmon's Helix and Coin Ninja platforms would fall into the latter category.

A key difference between Coin Ninja and CoinJoin, however, is that the former is a centralized service while the latter is a decentralized technology that users can build around. 

The U.S. is also taking issue with other privacy-enhancing solutions on top of Bitcoin. 

The United States Internal Revenue Service is paying developers hundreds of thousands of dollars to develop systems to deanonymize the Lightning Network, along with "cryptocurrency obfuscation technologies." Those that successfully provide software to do so will be granted $675,000. 

The Department of Justice also released its own cryptocurrency enforcement framework that highlighted mixers as a threat in a similar manner to Europol. 

Jake Chervinsky, a cryptocurrency-focused lawyer, believes that these efforts are part of a concerted effort by regulators to wage a war on bitcoin self-custody and privacy. 

I fear we're heading for a world where withdrawing crypto from exchanges to self-custody is restricted as a means of attacking privacy. We'd have two separate crypto markets: one of 'clean' custodial coins & another of 'dirty' self-sovereign ones, with no bridge between.

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Nick is a writer and analyst who has been following Bitcoin since 2013. When he is not writing, he works on HTC's Bitcoin phone, EXODUS.