Treasury Department Takes Aim at Convertible Virtual Currency Mixing

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TL Fahring focuses on helping individuals and businesses with a wide variety of matters involving state, federal, and international taxation. He has represented clients in all stages of federal and state tax disputes, including audits, administrative appeals, litigation, and collection matters. Mr. Fahring also has used his tax knowledge to assist clients in planning complex domestic and international transactions, including advising as to potential reporting and withholding requirements.

Mr. Fahring received his J.D. from the University of Texas School of Law, where he graduated with high honors and was inducted into the Order of the Coif and Chancellors honors societies. After clerking for a year at the Texas Eleventh Court of Appeals, he attended New York University School of Law, where he received an LL.M. (Master of Laws) in Taxation and served as a student editor on the Tax Law Review.

The Treasury Department has recently issued a notice of proposed rulemaking under the Bank Secrecy Act regarding the reporting of convertible virtual currency (“CVC”) mixing.[1]

Perceived Problems with CVC Mixing

The Treasury Department explains that “[t]he public nature of most CVC blockchains, which provide a permanent, recorded history of all previous transactions, make[s] it possible to know someone’s entire financial history on the blockchain.”[2] CVC mixing involves various methods “intended to obfuscate transactional information, allowing users to obscure their connection to the CVC.”[3] These methods include:

While the Treasury Department recognizes that there are legitimate reasons for  CVC mixing—for example, “privacy enhancement for those who live under repressive regimes or wish to conduct licit transactions anonymously”[10]—the Treasury Department also contends that CVC mixing is used by criminal actors to facilitate or promote money laundering.[11]

The Proposed Rule

The proposed rule would require a covered financial institution to report certain information and maintain certain records regarding a transaction involving CVC by, through, or to the covered financial institution that the covered financial institution knows, suspects, or has reason to suspect involves CVC mixing within or involving a jurisdiction outside of the United States.[12]

What is CVC?

“CVC” would be defined as “a medium of exchange that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.”[13] An exception to this last clause would be Bitcoin, which would be included within the definition of CVC even though it has legal tender in at least two jurisdictions.[14]

What is CVC Mixing?

Meanwhile, “CVC mixing” would be “the facilitation of CVC transactions in a manner that obfuscates the source, destination, or amount involved in one or more transactions, regardless of the type of protocol or service used . . . .”[15] This would include (but apparently would not be limited to):

What is a CVC Mixer?

Predictably, a “CVC mixer” would mean “any person, group, service, code, tool, or function that facilitates CVC mixing.”[17] Note, however, that the proposed rule covers CVC mixing and thus could apply to CVC users engaged in any of the above activities.[18]

What is a Covered Financial Institution?

The proposed rule would define a “covered financial institution” by reference to the general definition in 31 C.F.R. 1010.100(t), which includes each agent, agency, or office within the United States of any person doing business as a bank, broker/dealer in securities, money services business, telegraph company, casino, card club, person subject to supervision by any federal or state bank supervisory authority, futures commission merchant, introducing merchant in commodities, or mutual fund.[19]

What is a Covered Transaction?

A covered transaction is any deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, security, contract of sale of a commodity for future delivery, option on any contract of sale of a commodity for future delivery, option on a commodity, purchase or redemption of any money order, payment or order for any money remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming instruments or any other payment, transfer, or delivery by whatever means effected in CVC by, through, or to a covered financial institution that the covered financial institution knows, suspects, or has reason to suspect involves CVC mixing within or involving a jurisdiction outside the United States.[20]

The requirement that a covered transaction be “in CVC” means that the proposed rule applies only to “covered financial institutions that directly engage with CVC transactions, such as a CVC exchange.”[21] A covered transaction does not “include transactions that are only indirectly related to CVC, such as when a CVC exchanger sends the non-CVC proceeds of a sale of CVC that was previously processed through a CVC mixer from the CVC exchanger’s bank account to the bank account of the customer selling CVC.”[22]

What Would be the Reporting Requirements under the Proposed Rule?

A covered financial institution would be required to report the following information within its possession within 30 days of the initial detection of a covered transaction:


The Treasury Department requests comments on the proposed rule by January 22, 2024.

[1] 88 Fed. Reg. 72701 (Oct. 23, 2023) (proposing 33 C.F.R. § 1010.662).

[2] Id. at. 72702.

[3] Id.

[4] Id. at 72703.

[5] Id.

[6] 88 Fed. Reg. 72703.

[7] Id.

[8] Id.

[9] Id.

[10] Id.  at 72706.

[11] 88 Fed. Reg. 72704-72706.

[12] Id. at 72722 (Prop. 31 C.F.R. § 1010.662(b)).

[13] Id. (Prop. 31 C.F.R. § 1010.662(a)(1)).

[14] Id. (Prop. 31 C.F.R. § 1010.662(a)(1)). The countries in which Bitcoin currently has legal status are El Salvador and the Central African Republic. See Council on Foreign Relations, What Does the Cryptocurrency Decline Mean for Bitcoin Countries?,

[15] Id. (Prop. 31 C.F.R. § 1010.662(a)(3)(i)).

[16] Id. at 72722 (Prop. 31 C.F.R. § 1010.662(a)(3)(i)).

[17] Id. (Prop. 31 C.F.R. § 1010.662(a)(2)).

[18] Id. at 72703.

[19] Id. (Prop. 31 C.F.R. § 1010.662(a)(4)).

[20] See Id. (Prop. 31 C.F.R. § 1010.662(a)(5)); 31 C.F.R. § 1010.100(bbb)(1).

[21] 88 Fed. Reg. 72710.

[22] Id.

[23] Id. at 72722-72723 (Prop. 31 C.F.R. § 1010.662(b)(1)).