Governments hate Bitcoin. In fact, several countries, including China with the world’s second largest economy, prohibit its use for transactions in their country or banking systems. While the U.S. government has not joined the ranks of nations banning Bitcoin, it has made clear in recent years that it does not like the so-called “cryptocurrency.”
Why is Bitcoin, the most well-known cryptocurrency or “convertible virtual currency” (CVC), so disliked by the government? Uncle Sam and his counterparts in many other countries dislike such digital currency for the simple reason it is virtually impossible to control; and if there is one thing any government loves above all else, it is control.
In a move designed to gain at least some measure of control over Bitcoin and other cryptocurrencies, the Treasury Department is proposing a federal regulation that would require banks and other “money service businesses” (MSBs) to file reports with the Financial Crimes Enforcement Network, or “FinCEN,” whenever they engage in a cryptocurrency transaction above $3,000. MSBs include not only traditional banks and credit unions, but also casinos, stock brokerages, mortgage companies and insurance companies, among other businesses.
Requiring financial institutions to file reports with FinCEN is nothing new. Such businesses for decades have been required to file what are known as “Suspicious Activity Reports” or “SARs” whenever a customer engages in a transaction that appears to be, you guessed it, “suspicious.”
The extremely broad and vague nature of what might constitute a “suspicious transaction” by a banking customer, for example, and the fact that MSBs are prohibited by law from telling their customers that their transactions have been flagged and reported to the federal government, makes the use of SARs particularly problematic; notwithstanding the tool has proved useful in uncovering several serious criminal endeavors over the years.
If the rule proposed last December by Treasury and which currently is open for public comment takes effect, individual users of Bitcoin or other cryptocurrencies would lose the benefit of one reason why many people like such currency in the first place — its anonymity. If the Feds have their way, financial institutions that allow transactions in CVCs would henceforth be required to report all such transactions over $3,000 to the government; in addition to verifying the identity of customers using such currency, something they do not now have to do.
Since Bitcoin first appeared more than 12 years ago, many officials in Washington have sought to control it and other cryptocurrencies. For example, Sen. Chuck Schumer, now serving as the Senate Majority Leader, in the past has tried to “shut down” the digital currency. However, the elusive nature of cryptocurrency – is it really a “currency,” or is it more of a “commodity,” or even “property” – has foiled previous efforts to subject it to government control.
This latest gambit by FinCEN, requiring cryptocurrency financial institutions to gather and report to Washington on transactions involving the digital currency, may be the crack in the door long sought by federal regulators.
Despite concerns with the proposed FinCEN regulation, many cryptocurrency experts are cautiously optimistic that President Joe Biden’s financial team appears more favorably disposed toward cryptocurrencies than his predecessor Donald Trump, who declared himself “not a fan” of digital currency.
Still, while some in the cryptocurrency arena may favor moves by the new administration that could bring regulatory “clarity” to the sector, they would be well advised to remember that opening the door ever so slightly for government regulators, in virtually every instance results in less freedom and always a loss of privacy.
Bob Barr represented Georgia’s Seventh District in the U.S. House of Representatives from 1995 to 2003. He served as the United States Attorney in Atlanta from 1986 to 1990 and was an official with the CIA in the 1970s. He now practices law in Atlanta, Georgia and serves as head of Liberty Guard.