FinCEN, the Treasury Department’s financial crime watchdog, withdrew two proposed crypto surveillance rules on Monday: a 2020 plan that would have required banks to verify customers transacting with self-hosted wallets, and a 2023 plan that would have designated international crypto mixing as a primary money laundering concern.
Both withdrawal notices went up on the Federal Register’s public inspection site Monday and are scheduled for formal publication Tuesday, at which point the rulemakings end. Coin Center, the crypto advocacy group that fought both proposals for years, first reported the move.
Neither rule was ever finalized, so nothing changes for financial institutions on the ground. What ends instead is a six-year fight over how far Washington could reach into transactions between private wallets, a fight that shaped compliance budgets, exchange policies and a fair amount of congressional testimony along the way.
The two proposals
The 2020 wallet rule came out of the first Trump administration in its final weeks, in December. It would have required banks and money services businesses to verify customer identities and keep records whenever a counterparty used an unhosted wallet, or a wallet at a foreign institution flagged by FinCEN, for transactions above $3,000. Anything above $10,000, or several transfers totaling that in 24 hours, would have been reported to FinCEN directly.
The 2023 mixing proposal went further. It invoked Section 311 of the USA PATRIOT Act to declare international convertible virtual currency mixing a “class of transactions of primary money laundering concern.” Covered institutions would have had to file reports on mixing transactions with details down to wallet addresses, transaction hashes and IP addresses.
The definition of mixing was the problem. FinCEN’s draft covered facilitating transactions in any way that obscures their source, destination or amount, including pooling funds, splitting transactions, using single-use wallets and even timing delays between deposits and withdrawals so the two cannot be matched. Section 311 had never been used against a class of transactions before, which left the industry with no case law to lean on and no clear line between ordinary privacy practices and alleged laundering.
Coinbase pushed back in a January 2024 comment letter, arguing that the proposal’s lack of any dollar threshold would force bulk reporting of transactions nobody considered suspicious. It was not alone, and the comment record filled with versions of the same argument from exchanges, advocacy groups and some banks: the rule treated ordinary privacy practices as evidence of crime. The $10,000 aggregate reporting trigger also sat awkwardly next to the cash economy’s existing currency transaction reports, which crypto businesses saw as a double standard.
“The expansive definition of CVC mixing” could chill legitimate activity and place “a large reporting burden on covered financial institutions.”
FinCEN, citing commenters in its withdrawal notice
Why the agency relented
FinCEN said the withdrawals were informed by commenters’ concerns and by the July 2025 report of the President’s Working Group on Digital Asset Markets, which noted that “lawful users of digital assets may leverage mixers to enable financial privacy.” The agency framed both moves under the administration’s deregulatory agenda, saying it wants digital asset rules “fit-for-purpose.”
It did not disown the underlying concern. FinCEN wrote that it still believes illicit actors use mixers to hinder investigations and “will continue to monitor activity” for signs of illicit finance, with the option of future action. In other words, the agency is keeping the file open even as it closes these two rulemakings, and it retains every enforcement tool that does not require a new rule to use.
Some of this was already settled elsewhere. Treasury removed Ethereum mixer Tornado Cash from its sanctions list in March 2025 after an appeals court ruled that OFAC had exceeded its authority. And a March Treasury report to Congress required by the GENIUS Act concluded that mixers have legitimate privacy uses, an odd position for an agency that two years earlier had tried to sweep nearly all mixer activity into a reporting regime. That report also asked lawmakers for a “hold law” letting institutions freeze suspicious digital assets temporarily, which shows where Treasury still wants more power.
The industry’s reaction is shaped by history
The withdrawals validate a run of wins for privacy tools. The Roman Storm case, where the government’s most aggressive money transmission theory ran into a skeptical court, pressure-tested the idea that publishing code is a crime. The Tornado Cash delisting stripped OFAC’s authority over the contract itself. Sanctions against Blender.io and Sinbad fell away in practice as enforcement targets shifted. Now the two remaining regulatory threats from FinCEN are dead.
There are practical consequences too. The $3,000 reporting threshold in the withdrawn 2020 rule would have applied to a large share of exchanges’ customer flows, since most retail withdrawals from US exchanges are small. Its disappearance removes a compliance burden exchanges have been planning around for years, one that shaped product decisions from custody arrangements to how transfers to hardware wallets were documented and whether someWant domestic transfers were restricted outright.
Coin Center’s response was pointed. The group said Monday that the mixing definition was “extraordinarily broad, sweeping in common techniques used by ordinary cryptocurrency users to preserve their privacy,” and that the wallet rule “would have created a double standard for cryptocurrency transactions.” Both arguments now appear in FinCEN’s own withdrawal language, a rare outcome for a comment campaign and one that advocacy groups will cite often in the next few years.
Whether anything replaces these rules depends on Congress rather than FinCEN. The GENIUS Act left questions about privacy tools open, and the agency needs no new rulemaking to keep pursuing mixers through enforcement actions against specific operators it accuses of laundering. The door is not entirely closed, but for now the direction has reversed, and the last pieces of the 2020-era surveillance framework are gone.