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Coin Center Calls on Clearer Regulations In The US — Is Congress Open to It?

Last Updated November 17, 2023 9:58 AM
Teuta Franjkovic
Last Updated November 17, 2023 9:58 AM
Key Takeaways
  • The Bank Secrecy Act (BSA) granted excessive authority to the Treasury Department, potentially violating the nondelegation doctrine.
  • Its broad language criminalizes everyday transactions, sparking Coin Center’s due process and fair notice concerns.
  • Coin Center said it will file an appeal seeking the reversal of sanctions against Tornado Cash.

The Bank Secrecy Act (BSA) definition of a “financial institution” has the potential to encompass individuals engaged in money transmission for business purposes, such as paying employees or freelancers.

According to a recent Coin Center report , the BSA is criticized as being unconstitutionally broad, ambiguous, or an inappropriate delegation of legislative authority.

Bank Secrecy Act Challenged over Broad Authority and Due Process

While regulatory exemptions have partially mitigated this extensive scope, there are concerns about granting unelected officials complete discretion over determining who must adhere to surveillance requirements.

The report  contends that the extensive authority granted by Congress to the Treasury Department under the BSA potentially breaches the non-delegation doctrine, which prohibits Congress from transferring legislative powers to the executive branch.

The BSA’s broad language criminalizing commonplace financial activities also raises concerns about due process and fair notice.

While the Treasury has exercised its powers cautiously, there’s apprehension in the report that these expansive surveillance powers might be misused, particularly concerning emerging technologies like cryptocurrency.

This underscores broader issues tied to the BSA’s lack of precise statutory language and heavy reliance on executive agencies.

Given recent Supreme Court scrutiny of agency authority and emphasis on explicit Congressional mandates, a constitutional challenge to the BSA could be well-received.

The Court might assert that Congress needs to clarify definitions and compliance obligations within the law rather than delegating them entirely to the Treasury Department.

Ultimately, the report suggests  elected representatives may need to amend the BSA to ensure constitutional compliance, establishing a more precise boundary between legal and illegal financial activities to preserve the rule of law and the separation of powers.

Crypto Advocates Fight OFAC’s Tornado Cash Sanctions

Attorneys supported by Coinbase have filed appeals  following distinct rejections by Federal district courts in a lawsuit seeking the reversal of sanctions against the decentralized mixer Tornado Cash. Coin Center, a cryptocurrency advocacy group, has indicated its intention to pursue an appeal as well.

Last November, the Office of Foreign Assets Control (OFAC) included  Tornado Cash in its ‘Specially Designated National or Blocked Person’ list.

Following this, Coin Center recently initiated a lawsuit  against Janet Yellen concerning the sanctions imposed by OFAC on the crypto tumbler. However, this lawsuit has since been dismissed.

In its legal action, Coin Center contended  that the addresses linked to the fundamental non-upgradable smart contracts comprising Tornado Cash were not suitable targets for the sanctions.

One point of contention focused on whether the entity had relinquished any interest in these contracts since they were unalterable at this stage.

Nevertheless, the court determined that “TORN holders still have an indirect beneficial ‘interest’ in the use of the core software tool and the service as a whole because that increases the value of the TORN.”

The court also rejected the argument that Tornado Cash was entitled to First Amendment protection, stating that “the designation of Tornado Cash does not prevent Plaintiffs from spending money or donating money for political ends, nor does it prevent organizations from accepting anonymous donations.”

Coin Center Advises US Legislators on Digital Asset Taxation

Cryptocurrency advocacy group Coin Center has offered US legislators recommendations  about drafting any future legislation related to digital assets taxation.

Coin Center cited the Virtual Currency Tax Fairness Act  in a letter to Sens. Ron Wyden and Mike Crapo on August 21. The bill’s provisions include requiring the Internal Revenue Service (IRS) to create a de minimis exemption for cryptocurrency transactions.

By categorizing transactions involving digital assets as if they were for the purchase of foreign currencies, the proposal might be intended to promote the use of cryptocurrency as a payment mechanism.

Furthermore, the advocacy organization urged  lawmakers to take into account excluding digital assets from the reporting obligations for second parties under US tax law.

A cryptocurrency user in the US would be legally compelled to disclose even “incomplete or non-existent” information on senders of digital assets, raising privacy issues and placing an excessive load on filers, Coin Center claimed.

CCN reached out to Coin Center for commentary but did not receive a reply at the time of publishing

Coin Center Blasts ‘Unconstitutional’ Senate DeFi Bill

This is not the first time Coin Center criticized legislation as a few months ago, the crypto policy think tank blasted a new Senate DeFi bill , saying it would grant the U.S. Treasury overbroad authority while violating freedom of speech.

“The bill gives virtually unbounded discretion to the Secretary to decide what it would take to designate one as having ‘control’ of a protocol,” Coin Centre wrote in a blog .

For instance, contributors to open-source software might be included in this control.

“This is likely not what the authors of the bill have in mind, but it’s what the plain meaning of the bill they wrote would allow the Secretary to do,” Coin Centre added .

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