Is Monero Legal in US and Can You Use It Safely?

Published: January 10, 2024 | Last Updated: November 16, 2023

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.


Transactions that use Monero and other privacy coins are still legal in the United States. In this article, I will explore the likelihood of Monero being banned by referring to interviews with lawyers and core team members of Monero Network. I will also explore how countries that have banned Monero have handled it.  We will also look into why some exchanges in the US list Monero while others don’t. And I will explain what you are and what you are not allowed to do with your Monero as a US Citizen. 

is monero legal in US

First, while Monero isn’t banned in the United States, let’s take a look at why the U.S. government might want to do so.

Why ban Monero?

Monero uses stealth addresses and ring signature technology to obscure transactions from prying eyes. These privacy features make it hard for law enforcement agencies to track illicit activities such as money laundering, ransomware, and terrorist financing on the dark web. 

Ways Monero is used for illegal purposes

  • Darknet Market Currency: Frequently used as a medium of exchange on darknet markets.
  • Cryptojacking and Malware: Hackers embed malware in websites and applications, utilizing victims’ CPUs to mine Monero.
  • Ransomware Payments: Monero is often the preferred currency for ransomware groups. According to Wikipedia in the first half of 2018, it was used in 44% of cryptocurrency ransomware attacks.

With Monero transactions you can’t see transaction amounts and neither can you identify the sending or recipient wallet addresses like you can with Bitcoin and other cryptocurrencies. 

The only way you can see stuff on the Monero Network is if a user shares their private view keys with you. 

This makes Monero the cryptocurrency of choice for anyone who wants to preserve their privacy including those looking to engage in illicit activity. 

Why the government likes Bitcoin but not Monero

Now this is a problem for the government. In the case of Bitcoin, Government agencies can trace financial transactions on the public ledger. Everything is out in the open for anyone to check.

They don’t even need to ask for permission to do so. For example, there are a whole bunch of legal hurdles the FBI would need to jump through to be able to check your bank account transactions. However, there is no such restriction for them to check the movement of digital assets on a blockchain. If they can find a way to link a public address to a name that’s it. They have your whole financial history.  

The government also likes Bitcoin because it can ban certain bitcoins from being accepted on exchanges. While Bitcoin is supposed to be fungible it isn’t in practice as agencies can declare specific bitcoins that have been acquired illegally to be tainted. This means that major crypto exchanges and anyone else holding a money services license in the US need to block those coins from being offered on their platform. This can’t be done with a private coin such as Monero. 

In an interview, with Monero Matteo, Artic Mine, a core team member of Monero, says that he thinks governments will end up using Monero for their nefarious activities. He also considers Monero to be the most compliant digital currency

Why Monero is the most compliant coin

Monero did not do a pre-mine and the core developer team relies solely on donations to do its work.

Other projects will offer pre-mined coins to the original developers of a blockchain or they take a cut in transaction fees to fund their operations.

But this way of earning funds could fall under the purview of the SEC and the crypto asset could be termed a security. 

The most famous legal case concerning a pre-mine is XRP.

Are cryptocurrency exchanges allowed to offer Monero in the US? 

Crypto exchanges are considered Money services vehicles and as such they are required to comply with KYC (Know-Your-Customer) and AML (Anti-Money Laundering) requirements.

However, there is no outright regulatory framework that prevents them from offering Monero per se. For this reason, you will find different exchanges tackling the issue in different ways. Some exchanges such as Coinbase have decided not to offer Monero to their customers while others such as Kraken continue to list the coin. 

The only restrictions that apply to Monero currently are the same restrictions that apply to all forms of currencies i.e. you are not allowed to send them to individuals who are on the OFAC special designated persons list

This brings us to OFAC and FinCEN and how they are involved in enforcing checks on cryptocurrency.

The two operate independently of each other.

Agencies that oversee crypto

1. FinCEN

The Financial Crimes Enforcement Network (FinCEN) is headed by Mike Mosier. Mike used to work for Chainalysis, a blockchain analysis company specializing in tracing Bitcoin transactions. So he knows his stuff.

In 2013, FinCEN issued guidance on what type of activity is considered a money service for the crypto industry. Money service vehicles therefore need to report suspicious activity. 

They decided what entities fell under their jurisdiction such as exchanges and what did not e.g. miners. 

FinCEN distinguished between two types of systems. On the one hand, you have custodial service providers such as Coinbase.

Coinbase is essentially a big omnibus wallet where money belonging to different people comes in and then goes out.

The other system is software that people have written with automated rules. People writing software are not money services. Such software would include the Monero blockchain. 

So far the U.S. government has not taken any steps to ban the use of Monero. To do so is complicated. 

In his interview on Monero Talk, Peter Van Valkenburgh, research director at CoinCenter, says that you can’t mandate which software people use. He argues that if the government were to say ‘no one can use this code anymore” then there is a strong First Amendment defense.

According to Peter, when a government says you cannot use a software tool they are regulating conduct which is a First Amendment right. 

2. OFAC

The Office of Foreign Asset Control (OFAC) is a completely separate entity from FinCEN. They have the right to suddenly announce what activity is illegal.

Does Tornado Cash set a precedent for Monero to be banned?

The most recent case is when OFAC banned Tornado transactions after they found that about 25% of transactions were made by North Korean hacker groups. 

What is interesting about Tornado is that it is not a company.

Rather, it is a protocol that sits on top of Ethereum and operates based on smart contract rules. Placing your crypto in those smart contract addresses obfuscates their origin making them hard to trace. 

Outlawing Tornado cash means that anyone who had their cash stored on the smart contract can’t move it from there. This is equivalent to shutting down a whole bank because some bad actors use it.

This sets a bad precedent as now a government agency has indeed outlawed a bunch of code which according to Peter is a violation of a first amendment right.

If this is allowed to stand then we could end up with a scenario where they declare that all of the addresses on specific networks such as Monero are forbidden. Americans can’t use them.  

Constitutional authority

Some argue that this is not within OFAC statutory authority by Congress as they should only be focused on property and individuals and not code. They claim that OFAC is banning an idea and do not have the mandate to do so. 

OFAC does not give notice to all parties or hearings in front of a court of law. And there aren’t any preliminary rules either. All they are required to do is issue a press release and announce that from this day forward you are not allowed to interact with XYZ.

The other thing you should be aware of is that OFAC has a list of specially designated persons (SDPs) to whom private individuals are not allowed to send funds. This includes crypto assets. So if you inadvertently send Monero to an address on the SDP list you would be liable for performing illegal activities. 

What are other countries doing?

Some countries such as China have declared all cryptocurrency-related transactions illegal. However, the countries that have specifically issued regulations against Monero are Australia, South Korea, and Japan.

I took a closer look at Australia to see how things might play out in the US. 

Australia’s Australian Transaction Reports and Analysis Centre (AUSTRAC) is the equivalent of FinCEN. If you are a business and want to deal in Monero payments, you must register with AUSTRAC first. 

In the unlikely case that you are accepted you are then required to develop and implement an Anti-Money Laundering and Counter-Terrorism Financing program that complies with legislation in Australia. 

This means you will need to perform KYC on all your customers and keep diligent records. So again people in Australia can still own Monero but it’s unlikely you will be able to use it on a centralized exchange.

Can I use Monero as an individual?

Yes, there is no regulation or enforcement by the U.S. government against using XMR and storing it in your Monero wallet. Monero transactions have not been banned as such. 

Is it possible for exchanges to comply with AML obligations when listing privacy coins?

This question was tackled by Perkins Coie in a white paper and according to them, it can be done. It just means that exchanges need to take the extra step and look into the specifics of each coin. 

Could the government trace Monero transactions if they wanted to? 

It looks like they are trying. According to TechTarget, in 2020, the IRS granted $500,000 contracts to Chainalysis and Integra for the development of Monero tracing tools. The current status of Monero tracing is uncertain. In 2020, CipherTrace, a crypto analytics firm, filed two patents for Monero tracing technology. They provided “tracing virtualization” tools to government agencies. However they never disclosed what these tools are or how they work.

References

To write this article I relied on the following resources to a large extent;

Find out more about Monero

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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