In a landmark new report submitted to Congress, the U.S. Treasury has proposed a new “hold law” seeking to grant cryptocurrency exchanges the authority to temporarily freeze funds linked to suspected illegal activity without a court order.
The department also formally acknowledged that crypto mixers can serve lawful privacy purposes – marking a seismic shift from years of enforcement actions that framed these tools primarily as criminal infrastructure, with the federal government prosecuting their developers.
Treasury Seeks Power for Exchanges to Freeze Suspicious Crypto
These recommendations appeared in a report to Congress on technologies used to counter illicit financing involving digital assets, based on the Guiding and Establishing National Innovation for U.S. Stablecoins, GENIUS Act framework, which was passed in July 2025.
The proposed hold law would create a legal safe harbor that allows financial institutions and crypto platforms to temporarily lock suspicious assets during active investigations without the need for formal charges or judicial oversight, and before they are moved or converted through other crypto services, such as coin mixers.
“Exchanges often detect suspicious funds using blockchain intelligence, but there is not always a clear legal framework that allows them to hold those assets long enough for investigators to act,” Ari Redbord, global head of policy and government affairs at TRM Labs, told crypto media outlet Decrypt.
He added that the Treasury recommendation could help create a “defined window” for crypto platforms to pause those funds while law enforcement advances through the legal process. Redbord claimed that if adopted, the policy could “strengthen” how exchanges handle suspicious transactions, as he believes it would give law enforcement time to keep pace with the speed of blockchain transactions and strengthen public-private partnerships.
“Hold Law” Creates Paradox Between Freeze Disclosure and SAR Rules
While crypto exchanges can report suspicious activity, holding the funds is a legal challenge, said Andrew Rossow, public affairs attorney and CEO of AR Media Consulting. He noted that though banks already can delay a suspicious transaction, that power is “very narrow” and legally challenging. Currently, there is no “clear statutory safe harbor” that allows the bank to hold the funds while the investigation unfolds without a court order, sanctions authority, or risking liability.
Rossow said the issue is “even more awkward” for crypto exchanges because when they detect suspicious crypto flows, they would then need to choose between allowing the funds to move or freezing them, risking legal exposure. While the Bank Secrecy Act protects institutions that file suspicious activity reports in good faith, it does not clearly authorize them to freeze the funds tied to those reports.
If the Treasury’s hold law is adopted, crypto platforms will have clear authority to pause the suspicious funds while authorities review the case, he said. However, Rossow pointed out that the report has left several vulnerabilities “unresolved,” especially around the reliability of blockchain analytics and the “tipping off” restrictions tied to current Suspicious Activity Reporting (SAR) rules.
The proposal could create a paradox where transparency rules require disclosing a freeze, but under existing SAR rules, platforms are legally prohibited from informing users that they are under investigation.
“If you freeze someone’s assets and then must be transparent about it, but cannot tell them you filed a SAR, you now have a structural paradox. The customer will know they’re frozen, but they won’t know why. This creates a legal gray zone that would need to be exploited,” Rossow added.
Still, the Treasury’s hold law could help create a practical and important tool in the fight against crypto fraud and money laundering.
“Criminals move quickly, and digital assets move even faster. A narrowly tailored hold authority helps close that gap,” Redbord said.
Treasury Acknowledges Mixers’ Privacy Role but Warns of Hacker Use
Meanwhile, in a departure from years of aggressive enforcement, the Treasury has officially recognized for the first time that crypto mixers serve valid privacy needs for lawful users. The report acknowledges that because public blockchains expose transaction data by default, users require tools to protect their personal wealth, shield business payments, and keep charitable donations private.
The timing is particularly poignant following the 2025 conviction of Tornado Cash developer Roman Storm and Samurai Wallet co-founders Keonne Rodriguez and Willian Lonergan Hill, who developed Whirlpool, a coin-mixing service to enhance privacy for bitcoin transactions. While these developers were arrested and convicted of conspiracy to operate an unlicensed money-transmitting business, the Treasury’s new language suggests a growing recognition within the federal government that writing open-source privacy code is not inherently criminal.
Despite the partial reprieve for mixers on paper, the Treasury made it clear that its concerns regarding illicit finance have not waned. The report noted that North Korea-linked actors, primarily the Lazarus Group, stole at least $2.8 billion in digital assets between 2024 and 2025. The department maintains that while mixers have legitimate uses, they remain the primary infrastructure for hackers to launder stolen crypto.
This duality has led the Treasury to propose stricter definitions for decentralized finance (DeFi) entities, requiring them to adhere to rigorous Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) obligations.
