House Dems Target Crypto Mixers to Fight Laundering, Amid SEC Scrutiny

Key Takeaway

• House Democrats propose a bill targeting crypto mixers to combat money laundering, highlighting ongoing U.S. crackdown efforts.
• The bill faces challenges in a Republican-majority House but underscores the legislative focus on illicit finance within the crypto sector.
• Debate intensifies between Democrats' call for stricter crypto regulations and Republicans criticizing the SEC's aggressive enforcement.

Legislative Moves Against Crypto Mixers

Several Democrats on the House Financial Services Committee, including Rep. Sean Casten (D-Ill.), are preparing to introduce a bill targeting money laundering through cryptocurrency mixing services. This legislative effort, supported by Reps. Brad Sherman (D-Calif.), Emanuel Cleaver (D-Mo.), and Bill Foster (D-Ill.), aims to clamp down on mixers, which Casten suggests should be presumed as money laundering channels unless proven otherwise through audit. The bill emerges amidst ongoing U.S. crackdowns on mixers, highlighted by actions against Tornado Cash and Samourai Wallet, signaling a focused legislative approach to curtail illicit finance within the crypto space.

Crypto Industry Under Scrutiny

The backdrop to the proposed legislation includes heightened scrutiny of the crypto industry's role in illicit finance. Rep. Casten voiced concerns over the offshore-issued stablecoin Tether (USDT), citing reports of its backing "Russia's war machine" and its use for funding entities like Hamas. This scrutiny is part of a broader debate on crypto policy, with Democrats criticizing the industry's resistance to regulation, as echoed by Rep. Sherman's description of crypto as a "garden of snakes." The hearing also touched on the SEC's aggressive enforcement actions against digital assets, indicating a polarized view on the regulation and oversight of the crypto market.

Poloniex Hack and Tornado Cash Sanction

Recent activities further complicating the crypto regulatory landscape include the movement of $3.3 million worth of ether (ETH) by the Poloniex hacker to the sanctioned coin mixer Tornado Cash. This action, part of a larger $125 million theft from Poloniex's hot wallets, underscores the challenges of tracking and addressing the use of crypto in illicit finance. Tornado Cash's sanction by the U.S. Treasury in 2022, following its use by North Korea's Lazarus Group, exemplifies the government's stance on mixers and their potential for misuse.

Ethereum's Wallet Innovation

In response to security and usability concerns, Ethereum developers are advancing proposals to enhance crypto wallets. The upcoming Pectra hard fork includes Ethereum Improvement Proposals (EIPs) aimed at making externally owned accounts (EOAs) more programmable. EIP-3074, in particular, promises to significantly improve wallet usability by allowing smart contracts to authorize transactions for EOAs. This development, highlighted by Paradigm CTO Georgios Konstantonopolous as a potential "10x" improvement in wallet UX, represents a proactive approach to addressing some of the inherent limitations and user concerns associated with current wallet technologies.