The Bitcoin Foundation opposes the current draft of §1241 Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017 as it will have the consequences of creating a high level of regulatory uncertainty for all businesses making use of blockchain and cryptocurrency in their products and services. Our original opposition letter to U.S.C. §1241 was sent to the US Senate Committee on the Judiciary on August 29, 2017. Following our letter of opposition and follow-on discussions with legal counsel to Senator Grassley, one of the sponsors of §1241, we have a last opportunity to suggest edits to the bill before it is passed later this year.
The Bitcoin Foundation wishes to brief our legal counsel to suggest edits to §1241 and we only have 5 weeks left to do so. The estimate of legal fees for this exercise is $15,000, which we need to raise now.
How will §1241 define cryptocurrencies, including bitcoin, as it is currently drafted?
§1241 seeks to define anyone issuing, redeeming, or cashing bitcoin as a financial institution, requiring them to comply with the Bank Secrecy Act, 31 U.S.C. § 5312 and requiring them to adopt the same formal reporting procedures as financial institutions for the purpose of reporting suspicious financial transactions.
The bill’s approach (Section 13 of §1241) is to amend the definition of “financial institution” (31 U.S.C. §5312(a)(2)(K)) rather than defining “digital currencies” in the definition of money instruments (31 U.S.C. §5312(a)(3)). This approach, which does not define “digital currencies” has the effect of requiring anyone who would be considered an “issuer, redeemer, or cashier” of virtual currencies to comply with ALL money laundering reporting requirements.
What are the effects of defining cryptocurrencies as is currently the case in §1241?
The current version of the bill does not define cryptocurrencies, creating significant uncertainty for any business working with cryptocurrencies and blockchain technology. First, it is unclear who would be considered an issuer/redeemer/cashier. For example, it is not clear whether someone executing a peer-to-peer transfer or whether virtual currency wallet companies facilitating the transfers would be considered a “financial institution.” Similarly, it is unclear whether a Bitcoin miner would be considered an issuer because they are creating new bitcoins.
Second, as our member Theo Chino has argued in his Bitlicense lawsuit, any token unit using the blockchain technology could be considered a crypto or digital currency under Department of Financial Services’ regime. Many startups have launched or are evaluating non-financial uses of blockchain technology. Therefore, without a clear exemption, these startups would still be required to comply with §1241.
Overall, this bill would create significant legal uncertainty without a clear definition of cryptocurrencies and/or exclusions. Users and developers will be left to guess whether they fall under the statute and are forced to comply.
The Bitcoin Foundation’s high level suggested edits to §1241:
- We propose a tighter definition of virtual currencies than is currently the case in the ULC model act, to ensure that the bill is impacting only “virtual currencies” and nothing else, such as non-financial uses of the blockchain technology.
- Also, as we discussed with Senate staff, it is critical to propose a threshold level under which start-up businesses would be excluded from the statutory requirements. Without an exemption for start-ups, small start-ups and even larger ones would be subject to significant barriers to entry in the sector. Only large financial institutions will be able to participate. Additionally, many start-up businesses might decide not to enter the US at all and instead only operate overseas which would essentially kill any business potential for cryptocurrencies and blockchain technology in the US.
If we’re to stand any chance of changing the current draft of the bill we need your financial support.
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