Executive summary
On 6 October 2026, the Financial Crimes Enforcement Network (FinCEN) withdrew its proposed special measure targeting convertible virtual currency mixing transactions under Section 311 of the USA PATRIOT Act. The decision followed concerns about the proposal’s broad scope, potential compliance costs and implications for legitimate financial privacy.
This report finds that the withdrawal represents a shift towards a more proportionate, risk-based approach to cryptocurrency regulation. Although the proposed enhanced reporting requirements will no longer proceed, existing anti-money laundering, suspicious activity reporting and financial crime obligations remain enforceable.
The development reduces potential compliance burdens for financial institutions and cryptocurrency businesses while raising questions about the effectiveness of existing measures in detecting illicit transactions involving mixing services.
The report concludes that future regulation should distinguish legitimate privacy-enhancing activities from criminal conduct, ensuring that financial crime prevention remains effective without imposing unnecessary restrictions on lawful digital asset transactions or legitimate commercial activity.
Introduction and background
On 6 October 2026, the United States Financial Crimes Enforcement Network (FinCEN) formally withdrew its 2023 proposal to introduce enhanced reporting and recordkeeping requirements for transactions involving convertible virtual currency (CVC) mixing.1 The withdrawal, published in the Federal Register at 91 FR 63513, also removes FinCEN’s earlier finding that international cryptocurrency mixing constituted a class of transactions of primary money laundering concern.2
The decision represents an important development in the regulation of digital assets in the United States. It it indicative of a change in regulatory priorities, particularly regarding the balance between preventing financial crime, protecting financial privacy and avoiding unnecessary compliance burdens on financial institutions.
Importantly, the withdrawal does not legalise money laundering or exempt cryptocurrency businesses from existing financial crime laws. Rather, it ends a proposed additional reporting regime that had not entered into force.
Our legal report examines the background to the proposal, the legal basis for FinCEN’s action, the reasons for its withdrawal and the implications for financial institutions, cryptocurrency businesses and the wider digital asset industry.
Background to the 2023 Proposal
On 23 October 2023, FinCEN published a proposed rule identifying international CVC mixing as a class of transactions of primary money laundering concern under section 311 of the USA PATRIOT Act.3
Convertible virtual currency (CVC) mixing generally involves combining, transferring or restructuring cryptocurrency transactions to make it more difficult to identify their original source, destination or amount. Although these techniques can protect legitimate financial privacy, they can also be used to conceal proceeds from fraud, ransomware attacks and other criminal activities.
FinCEN’s original proposal was motivated by concerns that criminal organisations, terrorist groups and state-sponsored cybercriminals were exploiting cryptocurrency mixing services to move illicit funds without being easily detected.
FinCEN specifically identified risks involving North Korean-linked cybercriminals, Russian-associated ransomware groups and illicit online marketplaces.
Under the proposed requirements, covered financial institutions, including cryptocurrency exchanges where applicable, would have been required to report transactions they knew, suspected or had reason to suspect involved CVC mixing within or involving a jurisdiction outside the United States.
The proposed reports would have contained substantial information, including transaction amounts, cryptocurrency types, wallet addresses, transaction hashes, internet protocol addresses and customer identification details.
Reports would generally have been required within 30 calendar days of detecting a covered transaction.
The proposal also adopted a broad definition of cryptocurrency mixing, covering activities such as pooling digital assets, dividing transactions, using temporary wallet addresses and exchanging between different digital assets.
It nevertheless contained an exception for certain internal processes used by regulated financial institutions that preserved transaction records.
Despite this exception, the definition raised concerns that legitimate cryptocurrency activity could be captured by the proposed requirements.
Legal framework: section 311 of the USA PATRIOT Act
FinCEN’s original proposal relied on section 311 of the USA PATRIOT Act, codified at 31 U.S.C. § 5318A.
This provision authorises the United States Treasury to introduce special measures where reasonable grounds exist to conclude that certain foreign jurisdictions, financial institutions, accounts or classes of transactions present a primary money laundering concern.
The law provides five possible special measures, ranging from enhanced recordkeeping and reporting requirements to restrictions involving certain foreign banking relationships.
The 2023 proposal sought to apply the first special measure, which permits additional recordkeeping and reporting obligations concerning specified transactions.
Its purpose was to provide authorities with greater visibility into cryptocurrency movements potentially connected to international financial crime.
However, section 311 also requires consideration of relevant factors when selecting special measures, including legitimate business activity, compliance costs, competitive disadvantages and the potential consequences for the financial system.
These considerations are particularly important where regulatory measures could affect lawful financial transactions alongside genuinely suspicious activities.
The distinction between a proposed rule and an enforceable regulation is central to understanding the present development. Although FinCEN issued a formal finding in 2023, the proposed additional reporting obligations were never finalised. Consequently, their withdrawal does not repeal an existing reporting duty. Instead, it terminates the pending proposal and withdraws the finding supporting it.
The reasons for the October 2026 withdrawal
The October 2026 notice identifies two principal concerns behind FinCEN’s decision: the breadth of the proposed definition of cryptocurrency mixing and the potential reporting burden on covered financial institutions.
First, the agency acknowledged concerns raised during public consultation that the definition could discourage legitimate cryptocurrency transactions.
Privacy is an important consideration because transactions recorded on public blockchains can often be examined by third parties. Individuals and businesses may therefore use privacy-enhancing technologies for legitimate reasons, including protecting commercially sensitive information or avoiding unnecessary exposure of personal financial activity.
Second, the proposal could have imposed substantial compliance obligations on financial institutions. Businesses might have needed additional transaction-monitoring systems, blockchain analysis tools, reporting procedures and staff training.
FinCEN’s 2023 assessment estimated that approximately 15,000 financial institutions could be affected, with a combined annual reporting and recordkeeping burden of 1.47 million hours.4 These were projected burdens rather than costs actually incurred under an implemented rule.
The withdrawal also reflects other developments in United States digital asset policy.
In July 2025, the President’s Working Group on Digital Asset Markets published Strengthening American Leadership in Digital Financial Technology.5 The report recognised both the illicit use of mixers and their legitimate role in protecting financial privacy. It recommended that the Treasury consider appropriate next steps concerning the proposed mixing rule.
FinCEN subsequently confirmed, in its 5 October 2026 announcement, that the withdrawals formed part of the administration’s wider efforts to develop digital asset regulation that is appropriate to the risks and activities involved.
Accordingly, the decision reflects a regulatory reassessment rather than a conclusion that cryptocurrency mixing presents no financial crime risk.
Legal and regulatory implications
a. Implications for cryptocurrency businesses
We believe the withdrawal provides more regulatory certainty for cryptocurrency exchanges, custodians and other financial institutions dealing with digital assets.
These businesses will not become subject to the specific enhanced reporting obligations contemplated by the withdrawn proposal.
This removes the immediate prospect of implementing a separate compliance framework solely to satisfy the proposed section 311 measure.
However, the decision does not eliminate existing obligations under the Bank Secrecy Act (BSA).
FinCEN’s 2019 guidance explains that cryptocurrency businesses qualifying as money transmitters may remain subject to registration, anti-money laundering programmes, recordkeeping and reporting requirements.6
Consequently, businesses must continue assessing suspicious transactions, identifying relevant financial crime risks and submitting suspicious activity reports where existing legal requirements apply.
b. Implications for financial privacy
The October 2026 withdrawal impacts financial privacy.
The original proposal risked treating a broad range of privacy-enhancing activities as requiring special regulatory attention, even where no independent evidence of criminal conduct existed.
Folliwing this withdrawal, FinCEN has acknowledged the importance of distinguishing legitimate privacy protection from attempts to conceal unlawful financial activity.
Nevertheless, the withdrawal does not establish an unrestricted legal right to use any mixing service. Transactions remain subject to applicable criminal laws, sanctions restrictions and financial regulatory requirements.
c. Implications for financial crime enforcement
From an enforcement perspective, the decision removes a proposed mechanism for obtaining additional information about international mixing transactions.
This may limit the additional intelligence that would otherwise have been collected through the special reporting regime.
However, existing investigative powers and financial crime legislation remain available.
FinCEN expressly confirmed that criminals continue to exploit mixers and other technologies to obstruct investigations. The agency also stated that it would continue monitoring mixing activity for signs of money laundering, terrorist financing and other illicit financial conduct.
Therefore, the withdrawal should not be interpreted as a reduction in the legal consequences of criminal conduct involving digital assets.
Wider regulatory significance
The withdrawal illustrates the continuing difficulty of regulating emerging technologies that support both legitimate and unlawful activities.
A central concern with the 2023 proposal was that its wide definition might have captured ordinary cryptocurrency practices without adequately distinguishing their purpose or associated risk.
This raises an important regulatory question which is whether financial institutions should face additional reporting duties primarily because a transaction uses privacy-enhancing technology, or whether those duties should depend more closely on identifiable financial crime indicators.
The withdrawal appears to favour a more proportionate, risk-based approach.
However, there are legitimate concerns on the other side.
Cryptocurrency mixing can complicate investigations into stolen assets, terrorist financing and sanctions evasion. Additional reporting might have helped investigators identify suspicious patterns and establish connections between otherwise difficult-to-trace transactions.
The challenge for regulators is therefore how reporting obligations can be designed to identify harmful conduct without unnecessarily restricting legitimate activity.
The decision also forms part of a more strategic regulatory approach for cryptocurrency. On the same date, FinCEN withdrew a separate proposal concerning reporting and verification requirements for certain transactions involving unhosted digital asset wallets.7
Taken together, these decisions clearly shows a preference for reconsidering broad reporting proposals rather than automatically extending traditional financial surveillance mechanisms to every form of digital asset activity.
Practical considerations and future outlook
From our perspective, and following the aforementioned findings, financial institutions and cryptocurrency businesses should review the withdrawal carefully but should not treat it as permission to weaken their existing financial crime controls.
Compliance teams should distinguish the abandoned mixing-specific proposal from obligations that remain legally binding. Existing transaction monitoring, customer due diligence and suspicious activity reporting procedures should continue in accordance with applicable requirements.
Businesses should also ensure that employees understand that the use of a mixing service does not automatically establish criminal activity, although it may warrant further examination when accompanied by other suspicious circumstances.
Looking ahead, FinCEN retains statutory authority to address financial crime risks involving cryptocurrency. Its withdrawal notice expressly leaves open the possibility of further action.
Any future proposal would need to be assessed on its own terms, particularly concerning its scope, legal justification and consequences for legitimate users.
A more targeted framework could potentially offer stronger protection against illicit finance while reducing unnecessary compliance burdens.
The October 2026 withdrawal can be accessed here.
Financial Crimes Enforcement Network, Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern; Withdrawal, 91 Fed. Reg. 63513–63514 (6 October 2026).
Financial Crimes Enforcement Network, Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern, 88 Fed. Reg. 72701–72723 (23 October 2023).
31 U.S.C. § 5318A, Special Measures for Jurisdictions, Financial Institutions, International Transactions, or Types of Accounts of Primary Money Laundering Concern.
Financial Crimes Enforcement Network, Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern, 88 Fed. Reg. 72701–72723 (23 October 2023).
President’s Working Group on Digital Asset Markets, Strengthening American Leadership in Digital Financial Technology (July 2025), particularly pp. 100 and 107–108.
Financial Crimes Enforcement Network, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies, FIN-2019-G001 (9 May 2019).
Financial Crimes Enforcement Network, Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets; Withdrawal, 91 Fed. Reg. 63514–63515 (6 October 2026).