Once again, cryptocurrency advocates are worried that the federal government is planning to implement legislation that has the potential to kill crypto in its crib.
On Wednesday, Coin Center—a D.C.-based cryptocurrency think tank—reported that a provision quietly tacked onto a new bill might empower the Treasury Department to unilaterally block cryptocurrency transactions without public notice.
The bill in question is the America COMPETES Act, which the White House claims will "make our supply chains stronger" and allow the country to "outcompete China and the rest of the world" by moves such as boosting semiconductor manufacturing, expanding visa programs, and investing in U.S. scientific research. China, notably, has sought to stamp out cryptocurrency-related activity in the country for years, including a recent ban on mining that led to an exodus of firms to the U.S. and elsewhere.
The provision in question would essentially nullify prohibitions in the Bank Secrecy Act that require the Treasury secretary to publicly disclose decisions to block customers of financial institutions from transacting when money laundering is suspected. Language in the provision and findings suggest that cryptocurrency transactions may bear the brunt of scrutiny here.
"Because of how politically divided Congress is, the way that anything passes Congress are these giant must-pass bills,” Jerry Brito, executive director of Coin Center, said in an interview. “Some bills to rename a courthouse or rename a post office pass, but anything of substance does not pass on its own. It passes when it's attached to some massive must-pass bill like the infrastructure bill or the National Defense Authorization Act, which funds the military."
Congress' findings for the bill offer the rationale that these extraordinary powers are being granted for a few reasons. The first one is the suggestion that the Financial Crimes Enforcement Network (FinCEN) is allowed to take "special measures" to stop money laundering but that this authority was granted in 2001, before the advent of digital cross-border payment systems such as cryptocurrency that do not necessarily need large financial institutions as intermediaries. This sort of innovation, Congress finds, is "a boon for bad actors like sanctions evaders, fraudsters, money launderers, and those who commit ransomware attacks."
The second reason hinges on those ransomware attacks on U.S. companies, which often demand cryptocurrency payments and swelled to $590 million in the first half of 2021 compared with $416 million in 2020, according to Congress. Congressional findings lay primary blame for ransomware attacks for China and so argue that modernizing FinCEN's special measures authorities is integral to a bill explicitly crafted to compete with China.
Coin Center, however, is not convinced by the rationale offered for this and other provisions similar to it, given just how far the measures proposed would go.
“The proposed language in the America COMPETES Act would, and we cannot stress this enough, remove all formal controls, time limits, and public notice requirements from the imposition of these draconian measures,” Coin Center writes in its report. “It eliminates the notice and comment process (both in advance of prohibitions and after surveillance impositions) and it allows the Secretary to impose these measures “by order, regulation, or otherwise as permitted by law” permanently and secretly with no obligation to engage in a public process.”
This is not the first time that such provisions have popped up, nor will it be the last. In August, the Senate's bipartisan infrastructure bill proposal included a pay-for provision that would require crypto brokers to provide the IRS with information about customers. Ostensibly, this was part of a series of tax reporting rules that would raise $28 billion to pay for the infrastructure plan, but it rested on a definition of "broker" that included anyone "responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” That tax reporting rule provision ultimately passed despite widespread backlash among the crypto community and intense lobbying efforts.
The provision in question today, however, has been killed before. Representative Jim Himes, who is proposing it right now, has previously proposed a version of this to tack onto the National Defense Authorization Act but was unsuccessful after lobbying efforts by groups like Coin Center.
“The current law has checks and balances. So even if they add a new special measure that would cover cryptocurrency, which quite frankly I don't have a problem with—I actually think that cryptocurrency is already covered, but if they want to be extra sure, add it, that's fine. But that's because you have all these different checks and balances,” said Brito.
“If they choose to use that authority to implement a particular special measure against software wallets, then, number one, I would be notified. Number two, I would have the opportunity to comment in a public process and point out to them why this isn't good, why it's unconstitutional, and why it violates privacy rights and work out that process,” he said.
Of course, China’s own experience with trying to ban crypto (which is still not completely gone) shows that peer-to-peer protocols aren’t easy to completely stamp out even with official edicts and pressure on firms.