FinCEN Drops $3,000 Crypto Wallet Rule and Mixer Reporting Plan

FinCEN shelves $3,000 wallet records and $10,000 reports

An unhosted wallet is a wallet that does not require a financial institution to conduct transactions. In ordinary self-custody, the user controls the keys or signing authority instead of having an exchange authorize movements of funds.

Treasury’s December 18, 2020 announcement sought additional information from banks and money services businesses when customers interacted with those wallets, or certain wallets hosted in foreign jurisdictions identified by FinCEN.

Above $3,000, institutions would have kept transaction and counterparty records and verified their customer’s identity. The proposed records included the counterparty’s name and physical address, alongside transaction value, timing and payment instructions.

Above $10,000, institutions would have filed a report. The withdrawal notice also describes aggregation of multiple transactions exceeding $10,000 within 24 hours. The proposal would have given institutions 15 days to file a report after a reportable transaction.

These were obligations proposed for financial intermediaries. They were not a requirement that everyone holding a personal wallet register it with Treasury, and the recordkeeping threshold was not a tax or withdrawal fee.

The distinction affects what changes now. Removing the proposal reduces the prospect of a new, standardized collection requirement tied to these transactions; it does not establish that an institution collected no similar information under other rules or its own policies.

The counterparty requirement was especially significant for transfers between an exchange customer and someone using a personal wallet. Treasury’s announcement contemplated collecting the other party’s physical address even though that person might not have an account at the reporting institution.

The proposal distinguished collecting counterparty information from verifying the institution’s own customer’s identity. Describing it simply as a ban on private wallets would miss both the proposed duties and the intermediaries expected to perform them.

Crypto mixer withdrawal reverses a 2023 finding

FinCEN’s October 19, 2023 announcement presented international convertible virtual currency mixing as a class of transactions of primary money laundering concern. The agency used Section 311 authority to propose enhanced transparency through covered financial institutions.

Mixing attempts to make the relationship between crypto transactions harder to trace. The proposal applied when institutions knew, suspected or had reason to suspect mixing within or involving a jurisdiction outside the United States.

Its scope went beyond a short list of named services. The new mixer notice recaps techniques including pooling funds, splitting transfers, changing asset types and using transaction delays. It withdraws both the finding and the associated proposal.

The original announcement emphasized terrorist financing, ransomware and state-linked illicit finance. The withdrawal acknowledges legitimate privacy uses and preserves the possibility of future action against illicit activity. It does not declare every mixing transaction lawful.

Policy group Coin Center welcomed the decision, saying the breadth of the definition risked sweeping in ordinary privacy practices. It also argued that uncertainty over transaction location could encourage institutions to report domestic activity and restrict accounts.

Those are the group’s policy arguments, rather than a court ruling. The practical uncertainty shifts from whether these particular proposals will advance to how Treasury will address privacy and illicit finance through other measures.

The two decisions also unwind different stages of the policy process. The wallet action closes a pending notice of proposed rulemaking. The mixer action withdraws a formal money-laundering-concern finding as well as the reporting proposal built on it. Neither notice announces a replacement reporting regime.

Self-custody withdrawal leaves AML and sanctions duties intact

FinCEN’s 2013 virtual-currency guidance distinguishes an ordinary user from a business administering or exchanging value. Using convertible virtual currency to buy goods or services does not, by itself, make the user a money services business.

An administrator or exchanger can be a money transmitter unless an exemption or limitation applies. The agency’s 2019 guidance explains how existing Bank Secrecy Act obligations apply across different business models. The withdrawal notices do not announce repeal of that framework.

That guidance separately explains that a transmittal of $3,000 or more, or its virtual-currency equivalent, may trigger Funds Travel Rule requirements for covered money transmitters. The similar dollar figure should not be confused with the shelved wallet proposal: these are separate requirements with different scopes.

Information required under the Travel Rule can be communicated separately from the transfer of value. A blockchain transaction’s inability to carry identifying information does not, according to the guidance, remove an obligated business’s responsibility to provide it.

Sanctions operate separately. OFAC’s virtual-currency guidance describes customer and transaction screening, wallet-address checks and controls for sanctioned jurisdictions. Shelving a FinCEN reporting proposal does not authorize transactions involving blocked property.

That distinction is visible in Treasury’s recent A7 Network action, where sanctions, a proposed payment restriction and an investigative alert serve different purposes. A withdrawal in one docket does not cancel another action.

Self-custody also leaves signing security with the user. The separately reported Bitcoin Core PSBT safeguard concerns transaction authorization, which a reporting-policy change does not resolve.

Alternative.me’s Bitcoin-focused sentiment index read 73 on October 6, compared with 70 the previous day. It measures market sentiment, not the legal effect of these notices.

Source: Alternative.me. The provider labels 73 as Greed.

As of October 6 at 01:06 UTC, the notices were available on public inspection and scheduled for publication later that day. Their withdrawal dates are tied to publication, which had not been independently verified. Final publication and any subsequent Treasury guidance are the next concrete checkpoints; immediate changes to exchange policies were not disclosed.