Treasury Opens Door for Regulated Crypto Privacy Tools
The US Treasury's July 2025 money-laundering risk assessment drew a line between illicit concealment and supervised privacy services, requiring compliant mixers to maintain records, implement screening, and file suspicious activity reports.
Key Takeaway
Treasury just opened the door for legal crypto privacy — if mixers play by banking rules.
The US Treasury told Congress that custodial crypto mixers can operate legally if they register as money services businesses and comply with anti-money laundering rules.
The department's money-laundering risk assessment, issued in July 2025, distinguished between illicit concealment and supervised privacy services on public blockchains. Treasury said lawful users may want to shield personal wealth, business payments, charitable donations, and consumer spending from full public view. The framework requires compliant mixers to maintain records, implement screening, and file suspicious activity reports. Treasury's approach focuses on provider type, recordkeeping, and supervision rather than treating every privacy use case as identical.
This represents a sharp reversal from August 2022, when the Office of Foreign Assets Control sanctioned Tornado Cash for laundering more than ₱415.82 billion ($7 billion) in virtual currency since 2019, including over ₱27.03 billion ($455 million) stolen by North Korea's Lazarus Group in the largest known virtual currency heist. A November 2024 Fifth Circuit Court of Appeals ruling reinforced this shift by unanimously ruling OFAC overstepped its authority when sanctioning Tornado Cash's open-source software code rather than specific persons or entities, finding Congress did not grant OFAC power to sanction software owned by no one.
Coinbase Institutional reported in its 2026 market outlook that rising institutional adoption is increasing demand for privacy technologies such as zero-knowledge proofs and fully homomorphic encryption. Treasury's data showed ₱95.04 billion ($1.6 billion) in deposits from mixing services reached blockchain bridges since May 2020, with one bridge later scrutinized for North Korean laundering receiving ₱53.46 billion ($900 million) of that flow. Monthly transactions on public blockchains hit 3.8 billion in early 2025, up 96% year-over-year. A February 2026 Cambridge analysis noted that sanctions pushed away legitimate users faster than criminals and shifted the mixer market toward more compliant privacy services.
President Donald Trump made US leadership in digital financial technology a formal goal by executive order in January 2025, setting the stage for Treasury's July 2025 report instructing the department to revisit its 2023 mixer proposal.
This article was written based on reporting from CryptoSlate.
