Swan Bitcoin bans crypto mixers as privacy battle looms

The California-based Bitcoin platform Swan Bitcoin warned users by email of an indefinite ban for direct use of crypto mixers. The company attributed the policy to a stringent stance by U.S. regulators.

Hung in there w all the @SwanBitcoin partner issues but some lines can’t be crossed. Further support of Swan financially only supports chain surveillance and policies in direct conflict with Bitcoin and bitcoiners. @coryklippsten @SamouraiWallet @sethforprivacy @ODELL pic.twitter.com/UUAwNlhoWq

— wim (@WimTweets) November 11, 2023

The Beginning of the End?

The firm cited that Swan’s banking and custodial partners “will no longer service clients who directly interact with Bitcoin mixing services such as Wasabi, Samourai and other similar platforms.”

Deposits or withdrawals from such platforms may lead to the complete closure of Swan accounts by financial regulators.

According to platform representatives, banks and custodians have changed their policy in line with the Financial Crimes Enforcement Network’s new rules under the US Treasury. In October the agency proposed to classify cryptocurrency mixers as ‘money-laundering hubs’ that threaten national security.

“Swan fully supports your right to privacy. We actively oppose regulation by authorities that require financial institutions to report interactions with mixers,” the platform said in its letter.

Following the warnings about blockages, the cryptocurrency community pushed back against heavy-handed regulation and government appeasement.

The @SamouraiWallet X account обратил внимание that the FinCEN initiative remains only a proposal, and harshly criticised Swan for its ‘premature submission’.

“The worst part is that this proposal does not call for blocking deposits from mixers. It even states that mixing is 100% legal. The irony is that Swan encourages its clients to engage in financial structuring to avoid reporting that is required of them,” noted the user LaurentMT.

Most believe the new policy runs counter to the spirit of the trading platform and to Bitcoin itself.

Efforts to Resist

Despite the broad criticism, Swan co-founder and chief technology officer Yan Pritzker outlined the steps the company is taking to protect user privacy.

Recently we announced that some of the banks and qualified custodians that Swan works with have been freezing or terminating accounts involved in mixing Bitcoin. Today I’d like to help the industry get perspective on what’s going on, and what steps we are taking to do the right…

— Yan | swan.com (@skwp) November 11, 2023

“We believe mixers are normal, privacy is not a crime, and using unmixed bitcoins is like bringing your entire paycheck to the grocery store to pay for an apple. People should have the absolute right to exchange that paycheck for individual bills before spending it, so as not to reveal income to a clerk,” explained Pritzker.

The senior executive noted that such behaviour by banks is “expected and obvious”, as institutions do not wish to undertake extra work to prove their innocence in the event of real money-laundering incidents.

According to Pritzker, Swan has spent the last two years building its own independent financial infrastructure. However, to take payments in US dollars, the company must hold a MSB license.

Moreover, all such institutions must comply with FinCEN rules, FATF and other unelected authorities. Even individuals exchanging currencies via P2P services fall into this category, the CTO noted.

Licensed financial institutions are required to file suspicious-activity reports under the Bank Secrecy Act of the 1970s.

“These reports are filed by banks without challenge, as their best option is to file the document to protect themselves, rather than delay it and risk fines. We believe this constitutes Fourth Amendment violation, which gives the government the ability to conduct unwarranted searches and arrests of law-abiding American citizens,” stated the Swan co-founder.

With Bitcoin still poorly understood in Washington and the media, it easily becomes the scapegoat for the weaknesses of a system that allows stopping most real financial crime, Pritzker explained.

Taking advantage of this, U.S. officials pushed through a bill that curbs the circulation of digital assets and allows the government to surveil the majority of transactions.

A Swan spokesperson noted that the new FinCEN rule does not classify cryptocurrency mixing as a crime, but it requires far greater reporting.

To push back against such laws, Pritzker proposed educating the community in ‘principles of self-defence and privacy’. He promised to ‘continue pressing the industry’ to reduce the amount of KYC data required to open Swan accounts.

The platform’s co-founder also urged recognising the industry’s dependence on the banking sector:

“To push back against pressure from banks, a broad range of financial institutions willing to do business with Bitcoin companies is needed.”

Moreover, Pritzker called for the creation of dedicated public institutions and for advocates of cryptocurrency to advance within government.

In May 2022, the U.S. Treasury added the mixer Blender.io to the sanctions list, along with related Bitcoin and Ethereum addresses. The agency said the service helped launder funds stolen by North Korean hackers and was allegedly involved in ransomware attacks.

On August 8 of the same year, the mixer Tornado Cash was placed under U.S. sanctions on suspicion of laundering more than $7 billion in cryptocurrency. The service was used by the North Korean hacking group Lazarus Group.