According to blockchain analytics firm Elliptic, the US Treasury Department’s proposed rules requiring users to comply with KYC requirements whenever they try to send their crypto to a private wallet may be ineffective.


In its response to the rule, Elliptic said the rules could “negatively affect” the effectiveness of existing Anti-Money Laundering and Anti-Terrorist Financing (AML / CFT) regulations.

Earlier this month, the Department of Treasury issued a proposed rule-making notice that states that users of central cryptocurrency exchanges who wish to move assets to their own private wallet or to another must provide detailed personal information for transactions greater than $ 3,000. Exchanges will be required to report individual or groups of transactions totaling more than $ 10,000.

According to the Financial Crimes Enforcement Network (FinCEN) announcement, the community is asked to provide comments or feedback on the rules until January 4, 2021.


What does Elliptic think?

In its response to the rule, Elliptic said the rules exaggerate the risks proposed by non-hosted wallets, as transactions involving cryptocurrencies can already be tracked by analyzing the respective blockchain ledger.

This type of analysis is already used by law enforcement to track criminal activity and therefore, according to Elliptic, the new rules will increase the cost of documentation for information that can only be accessed using existing tools.

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The proposed guidelines were met with coherent feedback even before they were released. Regulators said the rules could have widespread repercussions, including the problems that decentralized finance (DeFi) projects may face.

Data cited in Elliptic’s response indicate that less than 10% of illegally sourced funds remain in non-hosted wallets, and the vast majority of them are “asleep”.

Elliptic noted that information about such funds is shared with FinCEN using suspicious activity reports (SAR), as the fraudulent actors depend entirely on their ability to cash out and convert them into fiat money, so the new rules only add more documentation.

In his reply, Elliptic stated that the 15-day comment period of the Treasury on this rule was “unfairly short” and asked the ministry to extend the period to 90 days.

Arguing that the proposed requirements are disproportionate to physical cash, Elliptic said the rules would impose an “unjustified tax” on financial innovations. The firm also argued in its recommendations to FinCEN that the proposed counterparty record keeping requirements should also be removed.


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