Both the US Senate and House are considering bills that create a legislative framework for stableecoins, and all the usual crypto skeptic refrains have been sung, including the hymn that crypto is for crime.
For example, Senator Elizabeth Warren (D-MA) warned that the Senate Genius Law “surpassing terrorism.” During the debate on Parliament’s stable action, representative Brad Sherman (D-CA) concerned the use of “unmanageable wallets to avoid” provisions on money laundering.
Not surprisingly, both the geniuses and stable actions include significant sections of illegal funding, including postponing stablecoin issuers to the Bank Secrecy Act (BSA). But legislators must ensure that Bills’ anti-laundering of money laundering does not open the door to unbound financial monitoring of stablecoin users.
Stableecoins are Krypto -Tokens, which is tied to the value of another asset, like the US dollar. The general idea is that the stable value of these symbols will promote their use as a digital exchange medium. Stableecoins can be considered an improvement in existing payment rails and as a way to bring the US dollar “on-chain.” In other words, stableecoins are an upgrade from the 21st century to cash. The Senate and Parliament both have advanced bills that would create a legislative regime for “permitted stableecoin issuers”, partly aimed at ensuring that stablecoins are actually stable.
But these days, conversations about dollars, financial services and crypto seem to go hand in hand with conversations to prevent illegal financing. BSA requires financial institutions to help federal agencies detect and prevent money laundering and other crimes by, among other things, keeping registrations of transactions and submitting reports to the government. Both Genius ACT and Stable Act tackle illegal financing concerns by clearly stating that a permitted stableecoin issuer “must be treated as a financial institution for the purpose of the banking secret law.”
Designating a permitted stableecoin issuer as a financial institution is relatively non-controversial. To put the question of whether BSA is a good (or constitutional) way of managing illegal financial risks, permitted stableecoin issuers resemble many other devices that banks and trust companies that are already BSA financial institutions. But it’s not that simple.
BSA’s monitoring framework requires that financial institutions “know their customers” and monitor transactions taking place through the institution. However, such monitoring is not extended to transactions that take place between individuals without the involvement of an institution. For example, BSA does not apply when cash changes hands between two people, allowing individuals to trade privately.
While it is impossible to track cash transactions in the way prescribed by BSA, stablecoins can be traced over a blockchain as they move between holders even when the transfers occur between wallets that are not unobstructed by intermediaries. This trait is tempting for those who may want to expand BSA monitoring beyond its already expansive (and constitutionally weak) boundaries.
Basically, digital asset transactions that are really peer-to-peer should not be subject to greater government surveillance than peer-to-peer transactions in cash. Application of provisions on laundering of money laundering on unmanagled wallets-which is more similar to physical wallets that keep cash than bank accounts be a massive expansion of financial surveillance and an unwelcome penetration of Americans’ ability to command their economic lives outside the government’s eyes.
Both the geniuses and stable actions make it clear – to varying degrees – that stablecoin issuers only have to have customer identification programs for customers who have either accounts “with the permitted Payment StableCoin issuer” (genius) or which are “initial holders” of a payment stablecoin (stable).
However, the other BSA requirements that the bills would impose on stablecoin issuers, including maintaining compliance programs for money laundering of money, withholding detention of stablecoin transactions, monitoring and reporting suspicious activity, is not so clearly limited. This lets the door be open to the introduction of wider surveillance requirements for stablecoin transactions that take place away from the issuer, which would be an important intervention in Americans’ rights to transaction privately.
Fortunately, the sponsors of both bills appear to read surveillance obligations narrowly. Representative Bryan Steil (R-Wi), one of the sponsors of the stable act, explained under the bill that requiring BSA monitoring of “every single self-hosted wallet” would “be a dramatic invasion of personal freedom” and that “Americans should not be treated in the same way as financial institutions.” And Senator Bill Hagty (R-TN), one of the sponsors of the Genius Act, said during this Bill’s mark that “[r]Equiring issuers to monitor transactions on various blockchains would be expensive and. . . time consuming. “
This mood about the extent of the BSA obligations imposed must be clearly reflected in the text of both bills to finally close the door to more expansive future interpretations.
Despite the characterizations of some skeptical members of Congress, it is not just a gift to criminals. Easy government access to financial information poses risks to all, especially those with unpopular political views or someone else in the minority. Such a monitoring is contrary to the freedoms (including rights recognized in the US Constitution) to live without unjustified government monitoring.
One step to ensure that these rights are not further violated is to guarantee that stablecoin legislation under consideration unequivocally protects against monitoring stablecoin transactions that occur without a financial intermediary.
