red 
Recent enforcement and activity in the US make it clear that the pressure to discourage use is intense cryptoasset mixers and other privacy-enhancing services won’t be getting easier anytime soon.
On April 24, the US Department of Justice announced the arrest of Keonna Rodriguez and William Lonergan Hill, creators and operators of Samurai Wallet, on charges of money laundering and non-compliance with US anti-money laundering (AML) laws. Samurai Wallet is a crypto-asset wallet service that obfuscates user transactions using multiple privacy-enhancing methods, including a technique known as “Ricochet,” which allows users to send funds through multiple crypto-asset wallets, or “hops,” to determine the distance between sources and the destination of the funds. Consequently, the ultimate source or destination of Samurai Wallet users’ funds is hidden from blockchain observers. Not surprisingly, illegal actors have found Samurai Wallet extremely useful for trying to hide their ill-gotten funds.
According to US prosecutors, Samurai Wallet was used to process more than $2 billion in illegal transactions between 2015 and 2024, including more than $100 million on behalf of Dark Web market users. Prosecutors allege that Rodriguez and Hill knew criminals were using Samurai Wallet to launder money, but the pair took no steps to comply with anti-money laundering laws – a requirement of any business operating money transfer services in the US.
US law enforcement agencies have previously scored major blows by shutting down major mixing services and securing the closure of their operators – particularly Helix, Bitcoin Fogand Chip Mixer mixing services, the three largest bitcoin mixing services, which together have facilitated billions of dollars worth of transactions. Samurai Wallet differs from those services in that it’s non-custodial—that is, it doesn’t take over user funds—but this isn’t the first time the US has used a non-custodial privacy-enhancing service. The US has also previously taken action against another non-prison mixing service, Tornado Cash, which is subject to US sanctions in August 2022 for facilitating transactions on behalf of North Korean cybercriminals.
In response to the Samurai Wallet announcement, the operators of a separate but similar privacy wallet service known as Wasabi Wallet, stated to block US residents from using their services – indicating they want to avoid a similar fate. In December 2020 Elliptic found that 13% of all Bitcoin laundering occurred through the Wasabi wallet.
The arrest of the samurai comes amid a broader effort by US regulators to crack down on the use of mixers in money laundering. In January of this year, the Financial Crimes Enforcement Network (FinCEN) of the US Treasury determined mixers as a “primary money laundering problem” due to their widespread use in laundering cryptocurrencies and proposed rules that would require crypto exchanges and financial institutions to record and report enhanced information on transactions involving mixers.
To learn more about illegal activities involving interference and other privacy-enhancing services, read on Report on elliptical typologies.
Hopes for America’s balance sheet are rising with leading Democrats signaling progress
Recent remarks by Democrats in the US Congress are causing more optimism – albeit very moderate optimism – that the US could pass stablecoin legislation this year.
On April 24, Representative Maxine Waters, the top Democrat on the House Financial Services Committee, he said that he believes the committee is close to agreeing on a draft bill that would create a framework to oversee the issuance of stablecoins in the US and that he believes it could achieve bipartisan support.
Progress in advancing work on a stable-currency bill that both Democrats and Republicans find broadly acceptable would mark a significant step in a Congress bitterly divided on most issues of the day. Various stablecoin bills have appeared in Congress over the past year, but none have advanced due to cross-party differences over which federal regulators should oversee stablecoins and how much oversight they give to state regulatory bodies. Waters’ statement, however, along with the release of a special draft law senators Cynthia Lummis and Kirsten Gillibrand, suggest there is a growing willingness to find a middle ground.
Crypto industry participants have been eager for Congress to pass stable currency legislation to give the industry clarity on the rules of the road ahead. The industry is too warned that the lack of a clear regulatory framework for stablecoins could cause the US to fall behind Europe, UK and other jurisdictions which are already introducing legal and regulatory frameworks for stablecoins – potentially undermining the innovation efforts of the US financial sector. American regulators are also anxious for Congress to pass the bill it would give them enhanced powers to oversee stable arrangements with the aim of reducing risks, such as financial stability risks and financial crime risks. To date, however, Congress has failed to find the political will to find a compromise and move forward with stable currency legislation – and recently many observers have written off the possibility of that happening anytime soon.
If recent signaling from leading Democrats raises hopes that stable currency legislation could happen this year, there are reasons to doubt that passage will happen this year. Currently, in order to pass a stable currency bill before the November 2024 US election, all measures would likely need to be attached to legislation to be passed in May to reauthorize the Federal Aviation Administration (FAA). However, it’s unclear whether Democrats and Republicans will be able to hash out all of their key differences over stablecoins before then — in which case, it’s unclear whether there will be a path forward before November. Which is more than the leading Democrats in the Senate, including Elizabeth Warreninterestingly, any legislation includes strong provisions to combat financial crime – a sticking point likely to be critical to passage.
It remains unclear whether the stable currency bill will pass this year, but it will continue to be a key issue to watch in the coming weeks and months.
The UK’s strengthened powers to seize cryptocurrencies come into effect
Law enforcement agencies in the UK now have new powers to seize crypto assets used by criminals.
April 26 took on new provisions effect under Law on economic crime and corporate transparency II which improve the ability of the UK’s National Crime Agency (NCA) to confiscate, freeze and dispose of crypto-assets. With the new authorities in place, police will no longer have to make an arrest before seizing cryptoassets from a suspect – a provision long sought by law enforcement agencies in the UK to allow them to act more quickly against suspected criminal use of cryptoassets.
The new authorities are also improving the UK’s crypto-asset seizure regime through a number of important measures, including: enabling UK police forces to seize passwords, memory cards and other items used to store crypto-assets that could prove useful to an investigation; giving law enforcement clearer authority to transfer seized funds to a police-controlled wallet; allowing law enforcement to destroy cryptoassets when it is deemed not in the public interest to return seized assets to circulation (for example, privacy coins seized for their involvement in illegal activities may be destroyed after investigation); and providing a clearer framework for victims of fraud and theft to apply for the return of their crypto assets seized by the police.
Venezuela signals interest in using Tether to evade sanctions
Venezuela’s government may be seeking a crypto-asset in an attempt to escape mounting sanctions pressure. April 22, Reuters registered that Venezuela is seeking to increase its use of crypto assets – and in particular the stablecoin Tether (USDT) – to allow it to circumvent US sanctions on Venezuela’s energy sector that President Joe Biden reimposed the previous week in response to concerns over the undemocratic nature of elections in Venezuela. According to PDVSA reports, the Venezuelan state oil company has started pricing some oil contracts in USDT since last year and plans to accelerate its use of stablecoins to receive payments for oil exports by making the use of USDT to settle payments a requirement for all oil contracts. oil – a move that would likely receive a charge and continue to price oil in US dollars while avoiding direct exposure to the US banking system, where its funds could be frozen.
Venezuela’s interest in using crypto assets to evade US sanctions is nothing new. Back in 2018, Venezuela announced the launch of its own crypto assetPetro, a project that the country recently disbanded because it never gained widespread use.
To learn more about how to ensure compliance with US crypto-asset sanctions, read on Elliptic’s 2024 Sanctions Guide.
Thailand plans to crack down on unauthorized crypto exchanges
Regulators in Thailand are taking steps to prevent unlicensed crypto exchanges from providing services in the country. The Securities and Exchange Commission of Thailand (SEC) is on April 19 issued a statement indicating that it has developed a list of unauthorized cryptoasset exchanges that it believes are operating in Thailand without an SEC license – and that users of those unlicensed platforms will be banned from using them in the future.
The SEC statement warned users to start withdrawing their assets from unlicensed exchanges and indicated that after an initial grace period to withdraw their funds from those platforms, Thai consumers should access unauthorized exchanges.
The SEC’s statement on unauthorized cryptocurrency exchanges reflects an effort to protect Thai consumers from high-risk activities. April 29 and SEC issued a statement reminding crypto-asset businesses of the need to comply with rules relating to the advertising of their products – efforts aimed at ensuring that consumers have full and accurate information about the nature of any cryptocurrency-related product they use.
DeFi protocol exploiter found guilty
A US jury found the perpetrator of the theft of $110 million from the decentralized finance (DeFi) protocol guilty. Avi Eisenberg was on April 18 found guilty committing fraud and engaging in market manipulation for using the Mango Markets protocol in October 2022. As part of the scheme, Eisenberg made three large trades on the platform for himself – causing the price of MGO tokens – the native token of the Mango Markets protocol – to rise; he then used his outsized position to “borrow” $110 million worth of cryptoassets from the protocol, primarily the stablecoin USDC, and anonymously requested that members of the Mango Markets community allow him to keep roughly two-thirds of the money he took in return for not pressing charges against him.
During his trial, Eisenberg’s lawyers argued that he acted in a manner consistent with Mango Markets’ community rules, and the jury ultimately found that he had engaged in a deliberate attempt to manipulate the market and defraud other users who put their cryptoassets on the exchange. Eisenberg will be sentenced this summer and faces up to twenty years in prison.
The case marks the first successful prosecution of DeFi market manipulation, and prosecutors hailed the jury’s decision as an indication that illicit behavior will not be tolerated in the DeFi ecosystem.
Articles of crypto regulation
