US Treasury’s Financial Crimes Enforcement Network (FinCEN) announced on Oct. 5 that it is withdrawing a reporting proposal for crypto mixing, the use of techniques that obscure a transaction’s source, destination, or amount.

The plan reached beyond dedicated mixing services and would have required financial institutions to report information about covered transactions and their customers.

The agency is withdrawing both its 2023 finding that international crypto mixing is a class of transactions of primary money laundering concern and the proposed recordkeeping and reporting rule.

The withdrawal notice lists Oct. 6 as its scheduled Federal Register publication date and states that withdrawal will take effect upon publication. FinCEN cited commenters’ concerns that the expansive definition could chill legitimate activity and impose a large reporting burden.

The proposed definition applied regardless of the protocol or service used. Examples included pooling funds, coordinating transactions with code, splitting transfers, routing funds through a series of single-use wallets, exchanging between crypto assets, and introducing user-initiated delays.

The proposed obligation applied when a covered domestic financial institution knew, suspected or had reason to suspect that a crypto transaction by, through or to it involved mixing within or involving a jurisdiction outside the US.

The definition also excluded certain internal processes used to execute transactions at banks, broker-dealers and money services businesses, provided they retained source and destination records and supplied them when legally required.

For wallet users, the proposed privacy exposure came through institutions’ reports. These would have included wallet addresses, transaction hashes, IP addresses, and customer identity information in the institution’s possession.

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