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Cracking Down on Money Laundering By Cryptocurrency Mixers

Congress and law enforcement agencies are taking aim at cryptocurrency mixers –services that mix cryptocurrency funds from multiple users in order to obscure the origin of the funds and make financial transactions harder to trace.  On May 7, several Democratic members of the House Finance Services Committee introduced legislation to crack down on the use of crypto mixers, also known as digital asset mixers, for money laundering.  The Department of Justice (DOJ) and other law enforcement agencies have also been actively pursuing money laundering by such entities.

The proposed House bill, the “Blockchain Integrity Act,” would temporarily halt financial institutions from making transactions with funds channeled through crypto mixers. During the two-year prohibition that the Act would impose, the Treasury Department, Securities and Exchange Commission (SEC), Commodity Futures Trade Commission (CFTC), and DOJ would evaluate the usage of crypto mixers and the risks these services hold, particularly in facilitating money laundering.

Understanding Crypto Mixers 

Crypto mixers, also known as crypto tumblers, may have legitimate uses, such as enhancing privacy, but they are also often exploited by criminals to launder money obtained through illegal activities such as drug trafficking, fraud, and extortion. In some cases, the founders and operators of crypto mixers have openly advertised the benefits of crypto mixer services for shielding the proceeds of illicit transactions.

Money laundering through crypto mixers poses a significant challenge to law enforcement and regulatory bodies because of the pseudonymous nature of cryptocurrencies. Unlike traditional financial institutions, which are subject to stringent anti-money laundering (AML) regulations, crypto mixers often operate in a decentralized and opaque manner, making it difficult to identify the individuals behind illicit transactions.

FINCEN, Department of Justice Take Aim at Crypto Mixers

In recent years, law enforcement agencies including the DOJ and the Financial Crimes Enforcement Network (FINCEN), a bureau of the U.S. Department of the Treasury, have taken action against money laundering and other violations perpetrated by crypto mixers.

The Financial Crimes Enforcement Network (FINCEN) issued its first civil penalty  against a crypto mixer for violations of the Bank Secrecy Act (BSA) in October 2020, levying a $60 million penalty against the founder of the crypto mixers Helix and Coin Ninja. FINCEN’s investigation concluded that the companies had operated as unregistered money services businesses (MSB) between 2014 and 2020. Entities operating as MSBs are required under the BSA to register with FINCEN, maintain anti-money laundering compliance programs, report suspicious transactions, and other requirements.

Similarly, in early 2023, DOJ charged crypto mixer ChipMixer and its founder with money laundering, operating an unlicensed MSB and failing to register with FINCEN, failing to conduct due diligence on customers, and identity theft. DOJ alleged that ChipMixer had facilitated the laundering of hundreds of millions of dollars in Bitcoin in connection with criminal activities including stolen cryptocurrency funds, darknet markets, stolen data, and Russian state backed malware.

DOJ followed up with another indictment in August 2023 when it charged the co-founders of Tornado Cash with conspiracy to commit money laundering, conspiracy to commit sanctions violations, and conspiracy to operate an unlicensed money transmitting business. Tornado Cash was alleged to have processed over $1 billion in laundered funds, including for the North Korean state-sponsored cybercrime organization Lazarus.

And in March 2024, a federal jury found the operator of crypto mixer Bitcoin Fog guilty of operating an unlicensed MSB and transmitting money without a license in the District of Columbia, conspiracy to launder money, and sting money laundering. DOJ had alleged that BitCoin Fog had facilitated around $400 million in Bitcoin transactions, funds which were largely the proceeds of drugs, cybercrime, identity theft, and child sexual abuse material.

Most recently, DOJ charged the co-founders of crypto mixer Samourai Wallet with operating an unlicensed MSB and laundering over $100 million in illicit funds. DOJ alleged that ChipMixer carried out over $2 billion in unlawful transactions that were not subject to oversight, of which over $100 million is estimated to be the laundered proceeds of criminal activities.

In addition to these enforcement actions, the U.S. Department of Treasury’s Office of Foreign Asset Control (OFAC) has also sanctioned a number of crypto mixers for money laundering, including Blender.io, Sinbad.io, as well as Tornado Cash.

Whistleblowers Can Report Information about Money Laundering

Whistleblowers who have knowledge of money laundering and other violations of law by crypto mixers can report this information to the FINCEN whistleblower program. FINCEN shares such information with DOJ and OFAC. Whistleblowers may be eligible for an award of up to 30 percent of the monetary sanctions collected by these agencies when they pursue the whistleblower’s tip.

Phillips & Cohen is the most successful law firm representing whistleblowers under the federal government’s financial fraud whistleblower programs. The firm’s partners include the former first head of the SEC Office of the Whistleblower, the former director of the CFTC’s Whistleblower Office and numerous attorneys with decades of experience representing whistleblowers.

If you are aware of money laundering or other fraud and would like to talk to experienced whistleblower lawyers, please contact us for a free, confidential review of your matter.


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