It seems that every time Massachusetts Senator Elizabeth Warren fails to pass an anti-crypto bill, she introduces a new one. She considers the strategy of passing bills—legislation introduced with the goal of attracting media attention and raising money more than actual passage—to be a science.
Warren’s latest legislation, the Digital Asset Anti-Money Laundering Act, threatens to undermine crypto’s core principles of freedom and personal sovereignty. While Warren says her bill is necessary to combat illicit activity, a closer look reveals its potential to stifle innovation, endanger user privacy, and play into the hands of big banks.
The bill, co-sponsored by Kansas Senator Roger Marshall, is based on the premise that digital assets are increasingly being used for criminal activities such as money laundering, ransomware attacks and financing of terrorism. While some bad actors exploit digital assets, the bill’s approach of treating all wallet developers and providers as potential criminals is not only impractical, but also dangerous.
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The most dangerous part of the bill is the requirement that digital asset developers comply with Bank Secrecy Act (BSA) responsibilities and know-your-customer (KYC) requirements. This effectively places the burden of law enforcement on the shoulders of software developers. This amounts to demanding that car manufacturers be responsible for how their vehicles are used on the road.
The bill further aims to eliminate privacy tools that protect crypto users from malicious actors. By cracking down on digital asset mixers and anonymity-enhancing technologies, Warren’s proposal threatens the privacy rights of law-abiding citizens. It is essential to remember that privacy is a fundamental right and not a privilege that can be waived at will. A number of early Bitcoin (BTC) millionaires were kidnapped and tortured as a direct result of the transparency of the Bitcoin blockchain, Warren would leave future Bitcoiners defenseless against such threats.
Although it claims to act in the name of national security, it is worth noting that big banks would greatly benefit from limiting the competition posed by cryptocurrencies. By imposing onerous regulations, the bill would make it difficult for cryptocurrencies to compete on a level playing field.
But what about the argument that digital assets are used by rogue nations and criminal organizations? While this is a valid concern, it is crucial to distinguish between the technology itself and the actions of a few. The same argument could apply to cash, which has been used for centuries for illegal activities. Banning cash would be an overreaction, as are overly restrictive crypto regulations.
Breaking: Elizabeth Warren’s latest anti-crypto legislation proposal
Senator Warren co-sponsored the Digital Assets Anti-Money Laundering Act of 2023.
Says the legislation aims to:
– fight against the “growing” misuse of digital assets.
-fill regulatory “gaps”
-extends the bank… pic.twitter.com/cl0L95Fyaj
– Carlo⚖️.eth (@DeFiDefenseLaw) December 11, 2023
One of the main concerns is the bill’s approach to “unhosted” digital wallets, which allow individuals to circumvent anti-money laundering controls and sanctions. While preventing illicit transactions is crucial, the bill’s proposed rule requiring banks and money services businesses to verify customer identities and file reports on certain transactions involving unhosted wallets may have consequences unexpected.
Forcing individuals to provide personal information for every transaction goes against the very principles that attracted people to cryptocurrencies: privacy and pseudonymity. It is important to find a balance between security and individual rights. Excessive regulation could drive users away from regulated platforms, pushing them into unregulated and harder-to-track environments.
Additionally, the bill’s focus on requiring FinCEN to issue guidance on mitigating risks related to the management of anonymized digital assets appears to ignore the fundamental principles of blockchain technology. Cryptocurrencies like Bitcoin are designed to be transparent but pseudonymous. Trying to eliminate this pseudonymity jeopardizes one of the key features that makes blockchain secure and attractive to users.
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Another significant issue is the potential overreach of expanding the BSA rules to include digital assets. Requiring individuals engaged in transactions of more than $10,000 in digital assets through offshore accounts to file a Foreign Bank and Financial Accounts Report (FBAR) may be excessive. This could result in unnecessary burdens for people who use digital assets for legitimate purposes, such as cross-border fund transfers or investments.
Warren’s bill is a muscular approach to a nuanced problem. Rather than stifling innovation and privacy, a more balanced approach would be to target specific criminal activities and individuals. The current AML system, which large crypto exchanges adhere to, has been effective in prohibiting illicit crypto use, which is why isolated cases have been reported.
The Digital Assets Anti-Money Laundering Act is a deeply flawed law. Warren’s bill poses a real threat to the crypto community and risks playing into the hands of big banks. It is essential that we find a more balanced and effective solution that addresses concerns without stifling the potential of this transformative technology.
JW Verret is an associate professor at the Antonin Scalia School of Law at George Mason University. He is a crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board Advisory Board and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank that fights for policy change to preserve the freedom and privacy of crypto developers and users.
This article is intended for general information purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.