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Cynthia Lummis and Ron Wyden Challenge DOJ on Crypto Wallets

Last Updated May 13, 2024 10:48 AM
Teuta Franjkovic
Last Updated May 13, 2024 10:48 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Cynthia Lummis and Ron Wyden expressed concerns about the DOJ’s definition of a money-transmitting business.
  • They said wallet software doesn’t qualify as money transmission.
  • The Senators contest the DOJ’s stance, saying it conflicts with FinCEN guidance on non-custodial crypto services.

Senators Cynthia Lummis and Ron Wyden have expressed serious concerns  regarding the US Department of Justice’s (DOJ) recent arguments to expand the definition of a money-transmitting business  under federal law.

This expansion, they argue, contradicts established Congressional intent and existing regulatory frameworks. As a result, they say, it could potentially criminalize non-custodial crypto asset software services.

DOJ’s Interpretation Versus Congressional Intent

The DOJ’s interpretation suggests non-custodial crypto service providers could be considered as money transmitters. Both Lummis and Wyden think this goes too far.

The regulations describe  a money transmitter  as someone who offers money transmission services. This is defined as accepting and sending “currency, funds, or other value that substitutes for currency”, or anyone involved in transferring funds. The definition of cryptocurrency as “currency, funds, or other value that substitutes for currency” is also, they say, ambiguous.

Under the regulations, if cryptocurrency is considered “funds,” then anyone transferring it is a money transmitter. Similarly, if it’s “currency” or a “substitute for currency,” anyone sending or recieving it is also a money transmitter.

The regulations have historically treated cryptocurrency as a substitute for traditional currency. This means someone controlling and moving another person’s cryptocurrency for business purposes is a money transmitter. This interpretation, established before the advent of cryptocurrency, remains unchanged by Congress, the courts, or further regulations. Any initial ambiguities were resolved by early Financial Crimes Enforcement Network (FinCEN) interpretations .

The core of their argument  hinges on the statutory definition of “money transmission”. This, they say, clearly includes the act of “accepting” and then “transmitting” currency, funds, or value that substitutes for currency.

According to Senators Lummis and Wyden, the DOJ’s stance ignores the necessity of direct control and custody of assets for such classification.

They reference the Bank Secrecy Act (31 U.S.C § 5330) and corresponding FinCEN regulations that emphasize the need for an entity to have accepted and then transmitted value to qualify as a money transmitter.

Implications for Non-Custodial Crypto Services

The senators argude that non-custodial crypto service providers did not meet the definition of money transmitters. This was, they claimed, because these services did not take possession of user’s crypto assets at any point.

Users of non-custodial wallets retain exclusive control over their private keys and the assets associated with them. This makes them different from the services that FinCEN’s regulations  cover.

This distinction is critical, according to the Senators.  Treating these service providers as money transmitters could, unintentionally, extend regulation to other organisations, such as internet service providers or postal carriers, who merely transmit information.

FinCEN’s Consistent Stance and DOJ’s Contradiction

Over the years, FinCEN has consistently said  that non-custodial crypto services do not fall within the regulatory scope of money transmission. Guidance from FinCEN clarifies that activities lacking ‘acceptance’ and ‘transmission’ of currency do not meet the definition of money transmission. Also, FinCEN’s 2019 guidance  reaffirmed this position.

Senators Lummis and Wyden find it concerning that the DOJ would contradict FinCEN guidelines. They argue digital assets like Bitcoin, despite their digital nature, have a unilateral owner at all times. This, they say,  is determined through the control of private keys, not through the possession of the asset by a service provider.

The letter to Attorney General Merrick Garland calls for a reconsideration of the DOJ’s expanded interpretation. It emphasizes the need for regulatory clarity and consistency.

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