Every Friday, Law Decoded provides an analysis of the week’s critical political, regulatory and legal stories.
January takes its name from Janus, the god of transitions and guardians or the gates of Rome, who always looks forward and backward.
While this has been the case for over two millennia, just a week after 2021 I’m fed up with reviews and forecasts. My personal findings from 2020 were pretty existential: we are just sentient dust; life comes to you quickly; Human plans and God laughs etc. But as I became more suspicious of the Institution of Prediction, I became much more diligent about flossing so that at least one solution came out.
The past few weeks have been so rich in crypto-political news that I don’t have to make a lot of abstractions about the future, but that doesn’t mean I’ll give up reckless predictions entirely. Much of what we have seen recently in US politics has to do with the impending transition from one administration to the next, which will dominate the next twelve days.
While a number of government agencies, led by presidential candidates, have scrambled to enact final rules before being swept away by Biden’s replacement, the Capitol building storm Wednesday night was shock and outrage enough to bring everything else to a standstill screeching halt. It also appears to have washed away the last of the meaningful support the outgoing president had at the federal level. In the US at least, it looks like the next two weeks will be all about Trump.
The FinCEN comment period ends
The already infamous wallet surveillance rules proposed by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) have closed their comment period.
Although FinCEN announced the rules just before the holidays, with only 15 days to comment, the proposal received thousands of comments. It found that the crypto industry unanimously condemned the urge to increase reporting requirements for crypto exchanges that run with self-hosted wallets.
The objections stemmed from a range of concerns about privacy, surveillance, lack of parity with cash, and the Treasury’s questionable ability to secure its own data. A decent section of the crypto community finds the idea that the government knows about financial transactions insulting and would likely support the sweeping repeal of the Bank Secrecy Act – another prediction: this will not happen.
Others just don’t like the imbalance with cash. The new proposal would apply a $ 3,000 threshold to crypto, which is the benchmark for international remittance reporting requirements, rather than a bank handling cash for a customer. In this case, the threshold is $ 10,000. The logic seems to be that it is impossible to know if a self-hosted wallet is in the US or overseas. Therefore, the Treasury Department wants this information when it crosses the lower threshold. This week FinCEN also asked to include foreign crypto accounts in the reporting requirements under the Bank Secrecy Act.
Given the flood of thousands of comments, it seems unfathomable that the Treasury Department will be able to enforce these rules before Mnuchin leaves with the Trump administration. Any resulting rules will likely be brought to trial for procedural reasons.
Twilight of the acting controller
The Treasury Department of the Currency Auditor, unlike FinCEN, has been a darling of the crypto community since former Coinbase legal chief Brian Brooks took over as Assistant Auditor in May.
On Monday, the OCC released a groundbreaking interpretative letter empowering national banks to operate nodes for distributed ledgers and use stable coins for payments. The decision is obviously a big deal for integrating crypto into the Goliaths of traditional financial infrastructure, but it remains to be seen how many national banks rise to the challenge of actually doing so.
Despite the popularity of such decisions in the crypto world, Brooks has rubbed some people wrong. In particular, the state supervisory authorities have questioned his expansion of the Bundesbank authority. On Tuesday, the attorneys general of eight states and the District of Columbia filed lawsuits against Brooks and the OCC over the recently enacted True Lending Rule. The rule places loans in which a nationally chartered credit institution is involved under the supervision of the OCC and subjects them to the interest limits of the OCC.
States say the new rule threatens the sovereignty of state anti-usury laws. However, the OCC argues that the program is a means of expanding credit availability. However, Brooks is unlikely to be in the OCC for the most part. His Trump nomination has not yet resulted in a Senate hearing at which such confirmation is unlikely to be prioritized until Biden’s rise on the 20th.
Protectionism in Payments
Despite what I wrote about predictions above, it’s the season. Here’s one thing: national payment protectionism is becoming a more central national priority. Crypto will go for it, especially given the pressure on central bank digital currencies and the surge in crypto analytics companies.
For example, the trade war between China and the US was heavily focused on technology. Cointelegraph has written extensively on the role of CBDCs in the competition between the two countries, with China’s digital yuan posing the most realistic threat to the geopolitical dominance of the US dollar since World War II.
Just this week, President Trump issued an ordinance that banned a list of Chinese payment apps from operating in the states. It won’t go into effect while Trump is in administration, which means it probably won’t go into effect at all, but it’s a gesture. Biden is unlikely to be as publicly bellicose as Trump in dealing with China, but the threat China poses to the US is fundamentally non-partisan.
In its ideal form, the Internet makes information limitless. Similarly, the Platonic term of crypto makes payments completely free. But just as the information remains isolated, the payments have yet to be released. As governments around the world tune into their own payment systems, incorporating stable coins and analysis, they expect major economic powers to become territorial.
AEI’s Jim Harper summarizes the inconsistencies between the FinCEN rule and the applicable BSA requirements for cash transactions.
Ballard Spahr’s lawyers are dealing with the new OCC rule for banks operating stable coin networks.
The Electronic Frontier Foundation welcomes the rejection by the United Kingdom of the US Department of Justice’s application for the extradition of Wikileaks founder Julian Assange.