The United States Financial Crimes Enforcement Network has just struck another low blow to privacy enthusiasts after announcing the first penalty for a Bitcoin mixer.
According to an official press release, FinCEN issued a $60 million civil penalty against Larry Dean Harmon, the man responsible for several Bitcoin privacy-focused services. Larry Dean Harmon was the mastermind behind the Lightning Network Wallet Dropbit, and the Bitcoin anonymization services (known as tumblers, blenders or mixers) Coin Ninja and Helix.
Larry Dean Harmon Operated Unregistered MSBs
According to FinCEN, the Bitcoin mixers Helix and Coin Ninja operated as an unregistered Money Service Businesses (MSB). Because of this, Harmon acted without obeying US regulations while evading taxes and skipping specific requirements that would have been mandatory should its platforms have been licensed.
FinCEN claimed that from 2014 to 2020, Harmon’s Bitcoin mixers facilitated the anonymization of at least $311 million through more than 1 million different BTC transactions.
In addition to monetary penalties, Harmon is facing criminal charges for being associated with activities that facilitated money laundering. Authorities argue that whenever a service allows any transaction intended to launder funds, it moves into a sphere of illegality, so while it is not technically illegal to participate in a bitcoin mixer, being involved in it along with criminals does make the activity illegal.
Per America’s laws, if registered, Harmon’s Bitcoin mixers would be under obligation to implement and maintain effective AML/KYC policies, keep track of all transactions and report suspicious activities.
The FinCEN also shows that Harmon’s PR strategy was not exactly the most law-abiding:
FinCEN’s investigation has identified at least 356,000 bitcoin transactions through Helix. Mr. Harmon operated Helix as a bitcoin mixer, or tumbler, and advertised its services in the darkest spaces of the internet as a way for customers to anonymously pay for things like drugs, guns, and child pornography. Mr. Harmon subsequently founded and acted as Chief Executive Officer of Coin Ninja, which operated as an unregistered MSB and in the same manner as Helix.
Bitcoin Mixers Are Not The Prettiest Thing in The Crypto Industry
News of this fine comes when the United States is pushing for stricter policies regarding the control of cryptocurrency operations. In addition to having issued warnings against cryptography and encryption services, authorities have hired several fintechs and developers to offer them services to track crypto transactions and even crack privacy blockchains like Monero.
Similarly, the use of mixers is an uncomfortable topic in the crypto-verse, with several exchanges blocking accounts of users with transactions associated with these services. Nobody wants to be in Harmon’s shoes, so many businesses naturally want to prevent possible conflicts. Still, Samourai Wallet, who runs the “Whirpool” token anonymization service, says there’s nothing to fear as long as decentralization comes into play.
Unrelated to us entirely. Whirlpool is non custodial, the user is in control of their private keys at all times, no transmission of funds occurs. Non custodial software is not a money transmitter according to the Bank Secrecy Act. The mixing service in the OP was *custodial*
— Samourai Wallet (@SamouraiWallet) October 19, 2020
And even if the Justice Department thinks otherwise, no one will ever know which criterion wins the day until there is actually a showdown.