Treasury’s Rush To Regulate Violates Law and Creates Unprecedented Surveillance for Everyday Americans

January 4, 2021

Chamber’s Comments to FinCEN’s Proposed Rulemaking on Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets

Late Friday, December 18, FinCEN released an unofficial version of its Notice of Proposed Rulemaking on the “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets” (the “NPRM”), publishing the official version in the Federal Register on Wednesday, December 23.  As we discuss in our response letter, the NPRM raises serious concerns for those who transact in virtual currency.

The NPRM purports to do two primary things for transactions involving convertible virtual currency (“CVC”) and legal tender digital assets (“LTDA”):

  1. At $3,000 and above, a bank or MSB must verify its customer’s identity and obtain at least the name and physical address for all counterparties to a transaction involving a wallet not maintained at a Bank Secrecy Act (“BSA”)-regulated financial institution (essentially, self-hosted or self-managed wallets); and
  2. At $10,000 and above, in addition to the above, a bank or MSB must submit a report to the Treasury Department on a form not yet provided that includes the above information as well as information related to the transaction itself, including the transaction hash and wallet addresses.

The proposed verification requirements would create a new standard for this technology that rises above existing know-your-customer (KYC) obligations. Providing this level of detailed information about non-customers (the counterparties to transactions) to the government for lawful transactions would erode financial privacy for lawful transactions of all amounts – even those not conducted through banks or MSBs and its repercussions cannot be understated.

In addition to the dramatic negative impact that the proposed regulations would instill, the U.S. Department of the Treasury has only provided for 12 days to comment on their proposed action during a period spanning two federal holidays and two weekends, which has effectively truncated the comment period to a mere 6 business days.

Such a short period renders it impossible to fully evaluate the proposed rule’s effects, legal concerns, and unforeseen consequences. Additionally, the current comment period impedes industry’s ability to respond to the two dozen questions raised for public comment. As a result, we argue that the 12-day/6 business day comment period is wholly inadequate and undermines the legitimacy of the proposed rule under the Administrative Procedure Act.

We delivered a letter to U.S. Treasury Secretary Steven Mnuchin requesting an extension of 90 days to respond to the proposed rule – expressing procedural concerns under law with these timeframes.  Members of U.S. Congress recently did the same.  We also circulated a petition, which as of the time of this writing, has attracted over 5,0000 signatures.

Regarding the proposed rule itself, it is critical to highlight the unprecedented scope of information FinCEN would collect regarding nearly every CVC transaction.  By combining information contained in CVC transaction reports, including the name, physical address, and blockchain address of the customer and all counterparties, the government will be able to track every transaction those wallet owners make, past, present, or future, at any transaction level and at any time.  The magnitude of this expanded data collection is unprecedented – it includes not only the information related to the transaction at hand, which is customary for cash transactions at this level, but also every transaction that the counterparties to the transaction make both before and after that one transaction.

To spell this out more clearly, this means that a counterparty to a transaction, who never had an account relationship with the bank or MSB, will have its entire wallet history and future transactions exposed to both that financial institution and the government.  This is an extraordinary expansion of the amount of information provided to third parties about non-customers.

The proposed rule could spell the end of financial privacy for CVC and LTDA users (including CBDCs).  The Chamber believes that giving the government the ability to track every financial transaction people make is a shocking invasion of privacy.  While there are good reasons to report certain transactions to the government, such as when suspicious or illegal activity is detected, enabling such granular tracking of individuals’ lawful, everyday financial activities is beyond common principles of government oversight.  Quite simply, this action would open the door to unprecedented personal data collection, individual monitoring, and a tremendous loss of privacy for millions of investors, businesses, and consumers.

The Chamber believes that the very significant compliance and privacy questions raised by this proposed rule, as well as potential for much broader implications for people and businesses demand significantly more evaluation and time for comment from multiple stakeholders.