The U.K.’s National Crime Agency (NCA) has called for more regulation on cryptocurrency protocols that let digital asset traders mask their transactions, according to published reports Tuesday (March 15).
The regulations would apply to decentralized mixers like Wasabi Wallet and Tornado Cash, which use smart contracts to hide the visible chain of transactions between a sender and receiver. While crypto supporters say these tools offer more privacy, regulators say they could be used to aid in criminal activity or to help governments avoid sanctions.
The NCA wants these mixers to conduct know-your-customer checks and record audit trails of the tokens on their platforms.
“When it comes to crypto transactions, the owner’s identity is already obscured, and the reality is that prying eyes would need additional, hard-to-get information to determine a wallet’s balance and its owner,” Gary Cathcart, head of financial investigations at the NCA, said in a statement. “The argument on privacy is therefore a weak one.”
He added that stricter rules would give peace of mind to consumers and let law enforcement get judge-approved court orders for investigations. This would help investigators determine the difference between mixers being used for privacy and for helping mask criminal activity such as ransomware attacks or terrorism.
“The overall volume of crypto-related money laundering is still low when compared to the wider economy,” said Cathcart. “The threat lies with the exponential adoption of cryptocurrencies, and the criminal activity that we will inevitably encounter through that.”
And while the NCA didn’t make any reference to Russian sanctions in its statement, its call for tougher regulations came one day after the crypto forensics firm Elliptic reported finding a digital wallet with millions of dollars in crypto which could be connected to sanctioned oligarchs and government officials.