Working with Europol, several law enforcement agencies shut down a Bitcoin mixing and anonymizing service called Bestmixer, which was one of the largest mixing services for digital currencies.
Mixing and anonymizing services or anonymizing exchanges process digital currencies on behalf of customers in order to make it difficult to trace them. The purpose of preventing tracing is to defeat the administration of justice and the rule of law by preventing the tracing of financial transactions so that neither law enforcement agencies nor civil private parties can pursue justice, regardless of the purposes – whether it be for taxes, to pursue investigations for theft, fraud, divorce or to recover assets. Mixing is also called tumbling or Bitcoin laundering.
In exchange for mixing digital currencies, the services take a commission ranging from 1% to 5% of the value of the digital currencies being mixed. Mixers funnel digital currencies through hundreds of wallets and split them up so that tracing is difficult and time consuming.
Many darknet marketplaces that sell illegal drugs, weapons, fake ID, child pornography and murders-for-hire services payable with Bitcoin have mixers built into the service in order to make it hard for law enforcement to obtain the transactors behind the transactions.
Law enforcement conducing the investigation of Bestmixer, said that many of the users of this particular service had a criminal origin or criminal destination and the mixer was used to launder proceeds of crime.
Mixers and tumblers are not actually anonymous because the service has all the data from every customer, on what wallet address was the entry point and to what wallet address or addresses, it exited to. For example, we did a digital currency tracing in support of a law enforcement file of several digital currencies that used an anonymizing service. Law enforcement believed the wallet holder was involved in organized crime. The anonymizing service, on request and as part of the financial crime investigation we were assisting with, was able to provide the data on the exit addresses the digital currencies exited to after being tumbled through the anonymizing service. From that exit point, we were able to trace the digital currencies to a digital currency exchange.
Legality of Mixers?
There is a lack of clarity on whether mixers, tumblers and anonymizing services are illegal but in most countries, financial transactions designed to defeat the rule of law, to obstruct justice or to defeat the fulfilment of a civil claim, is illegal. If mixing or tumbling digital currencies defeats or inhibits private investigators working for civil asset recovery or law enforcement from tracing financial transactions, arguably it is not legal. No Court has yet ruled on the issue but arguably, using a mixer, tumbler or anonymizing service could be a fraudulent conveyance where the purpose is to avoid liability civilly or criminally.
As a matter of equity, as well, such services, where they defeat the discovery or recovery of assets, could be forced to de-anonymize in civil litigation matters. That’s because it is the province of equity to supply the defects of the common law and it is also the province of equity to mitigate the rigours of the common law, irrespective of the fusion of law and equity.
Mixers, tumblers and anonymizing services who purport to claim their services are not designed to defeat the rule of law may be estopped from arguing a different set of facts to avoid de-anonymizing transactions as part of an investigation.