The US government is gearing up to unleash the PATRIOT Act’s powerful anti-money laundering tools on the crypto world. This could dramatically change how crypto is used, regulated, and developed.
Targeting Mixers and DeFi
The Treasury Department is aiming to use a section of the PATRIOT Act (Section 311) to target crypto mixers, DeFi protocols, and even some wallet services. The Financial Crimes Enforcement Network (FinCEN) is drafting a rule that would label crypto mixers as major money-laundering threats. This would let the Treasury essentially cut these services off from the US financial system by blocking banks and other financial institutions from working with them.
Expanding on Past Actions
This new rule is similar to a 2022 rule targeting mixers, but with a much wider scope. Section 311 gives the Treasury the power to ban not just specific companies, but entire categories of transactions. This means mixers, DeFi projects, and even wallet providers could be directly targeted. One expert warned that this isn’t just about one specific mixer; any DeFi project the Treasury deems suspicious could be blocked.
Congressional Support and Broader Implications
Lawmakers are backing this move. A new bill aims to solidify the Treasury’s ability to use Section 311 against crypto. This would give the government even more power to act against privacy-focused crypto tools without needing individual approvals for each case. The impact extends beyond mixers; smart contracts and decentralized protocols could also be targeted if the Treasury considers them involved in illegal activities.
Industry Pushback and Legal Challenges
The crypto community is likely to strongly oppose this. They argue that such broad powers violate due process and stifle innovation by treating open-source code as criminal. Civil liberties groups have already challenged similar actions, arguing that blanket bans infringe on the rights of developers and users. Exchanges and custodians will also face increased regulatory burdens and costs.
The government justifies this by pointing to the use of crypto mixers by North Korean hackers, Russian darknet markets, and ransomware groups. They claim that without these new powers, they’ll struggle to stop digital assets from being used for illegal activities.
However, the legal fight is far from over. The previous actions against mixers are already being challenged in court, and this expansion is expected to spark even more legal battles. But the message is clear: the days of relaxed oversight on crypto privacy are over. The government is making it clear that no part of the crypto industry is safe from scrutiny.