The most notable thing about the cryptocurrency exchange Huobi’s decision to delist seven anonymity-focused “privacy coins” beginning Monday (Sept. 19) is that it comes just two months after it acquired a license allowing it to enter the U.S. market.
On July 5, Huobi announced that its brokerage subsidiary HBIT had received an MSB license from the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. This would allow the top-10 global exchange to return to the U.S. almost three years after in abruptly shuttered its American affiliate, HBUS.
See also: Privacy Coins: Blow for Freedom — or Boon for Crime?
While the Seychelles-based exchange founded in China hasn’t said that the delistings were a condition of the license, in a Chinese-language statement last week, it called the move “progress in the compliance process … creating a good compliance foundation for the company to carry out digital currency-related business in the United States in the future.”
In the English announcement of the delisting, it merely said the move was “in compliance with the latest financial regulations.” Huobi’s actions affected the three largest privacy coins, Monero (XMR), Zcash (ZEC) and Dash (DASH), as well as Firo (FIRO), Decred (DCR), Verge (XVG) and Horizen (ZEN).
Agencies on the Attack
However, the U.S. has previously cracked down on privacy coins in other ways, with the Internal Revenue Service handing out contracts worth more than $1 million to fund attempts to break the anonymity of the leading privacy coin, monero. And in June 2018, the Secret Service asked Congress for legislation targeting privacy coins, Forbes reported.
And other countries have been more direct. Japan banned them back in 2019, and a pair of South Korean exchanges, Bitthumb and Upbit, even delisted litecoin — one of bitcoin’s earliest competitors as a payments currency — in June after it added privacy features, Decrypt reported.
The move also comes less than six weeks after another Treasury Department enforcement unit, the Office of Foreign Assets Control (OFAC), imposed groundbreaking sanctions on Tornado Cash, a crypto mixing service that does for normal cryptocurrencies like bitcoin and ether what privacy coins seek to do: Make it harder, if not impossible ,to track cryptocurrency transactions.
Read more: Crypto Crime Series: When Privacy Counts, Crypto Users Turn to Mixing Services
OFAC blacklisted the site after it discovered evidence that North Korean hackers had used it to launder crypto funds, which the rogue state is believed to be using to support its nuclear program. It is the first time sanctions were leveled on computer code — long seen legally as writing — rather than a person or business. Nasdaq-listed crypto exchange Coinbase is funding a lawsuit challenging the listing.
See also: With Tornado Cash Sanctions, Feds Seek to Lift Crypto’s Veil of Anonymity
See also: Coinbase Backs Suit Against Treasury Over Tornado Cash Sanctions
Looking for Guardrails
Beyond that, last week’s Treasury Department report on its “Action Plan to Address Illicit Financing Risks of Digital Assets,” noted that “criminals are increasingly using anonymity‐enhancing technologies, such as enhanced cryptography [privacy coins], mixers, or operation on an opaque blockchain.”
See here: Justice Department Signals Intent to Crack Down on Crypto Crime
In that report, made in response to President Biden’s executive order on a regulatory framework for cryptocurrencies, the Treasury Department also said that while mixers “often operate as money transmitters and thus have regulatory reporting obligations, they may deliberately operate in a non‐compliant manner to make it more difficult for regulators and law enforcement to trace illicit funds.”
Then there’s a line in the request for comments on Ensuring Responsible Development of Digital Assets website that the Treasury Department plans to open on Sept. 20.
In the anti-money laundering (AML) and countering the financing of terror (CFT) section, one of the questions asks: “What additional steps should the U.S. government consider to address the illicit finance risks related to mixers and other anonymity-enhancing technologies?”
Then there’s the Justice Department’s Sept. 16 report on “The Role of Law Enforcement In Detecting, Investigating, and Prosecuting Criminal Activity Related To Digital Assets” in which it says darknet markets use “a growing variety of cryptocurrencies, including anonymity-enhanced cryptocurrencies or so-called ‘privacy coins,’” as do other criminals using “cryptocurrency and other digital assets for money laundering, facilitating tax evasion, and evading sanctions.”
Also read: Justice Department Signals Intent to Crack Down on Crypto Crime
Between the Treasury Department’s sanctions and comments in its reports, and the Department of Justice’s in it own version of the report made in response to Biden’s executive order, it’s hard not to see Huobi’s delisting as a sign of things to come.
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