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FinCEN’s Crypto Surveillance Rule Violates the US Constitution

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In the late afternoon on the Friday before Christmas, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a regulation introducing data collection and reporting requirements for cryptocurrency. FinCEN gave the public only 15 days to comment, over the holidays, instead of the usual 60 days. This was a clear attempt to push through a midnight regulation without giving the public time to respond, and it backfired. Despite the short timeline, roughly 7,500 people and entities submitted comments decrying the proposal, the most FinCEN has received on any proposed rulemaking. The comments on this proposal constitute nearly 70% of all comments FinCEN has received on all rule-makings since 2008 combined.

Marta Belcher, a cryptocurrency and civil liberties attorney, is special counsel to the Electronic Frontier Foundation, general counsel to Protocol Labs and an attorney at Ropes & Gray. She is also Board Chair of the Filecoin Foundation and the Filecoin Foundation for the Decentralized Web. Her views are her own.

So many people spoke up about this proposed regulation because it is a blatant violation of civil liberties. The proposal would require certain businesses like cryptocurrency exchanges to collect identity data not just about their own customers but also about non-customers who transact with their customers, and to keep that data and hand it over to the federal government when the transactions exceed a certain amount. This would give the government access to troves of sensitive financial data, going well beyond FinCEN’s requirements for non-cryptocurrency transactions. 

In addition, the regulation would give the government far more data than what the regulation itself even contemplates. The proposed regulation would give the government the identities associated with cryptocurrency wallet addresses. Because of the nature of public blockchains, that means the government would know the identity associated with all transactions for those wallet addresses, even when the amounts of those transactions are far below the reporting threshold. 

In the Electronic Frontier Foundation’s comment on FinCEN’s proposal, Rainey Reitman, Danny O’Brien, Aaron Mackey and I argue that the proposed regulation violates the Fourth Amendment of the U.S. Constitution. 

The Fourth Amendment requires that law enforcement obtain a warrant supported by probable cause before conducting a search or seizure. So why is it that, in the traditional financial system, law enforcement can engage in mass surveillance of bank customers without a warrant? The answer is the third-party doctrine – the idea that people do not have a reasonable expectation of privacy in the data that they share with a third party like a bank. In 1976, the U.S. Supreme Court held in U.S. v. Miller that the Bank Secrecy Act (as it was implemented at the time) did not violate the Fourth Amendment because of this third-party doctrine.

But I believe the Court would come to a different decision if faced with FinCEN’s proposed regulation – or, indeed, the mass surveillance that we have come to accept as normal in today’s banking system. Even in the 1970s, the Supreme Court justice who authored Miller wrote in another case that “financial transactions can reveal much about a person’s activities, associations and beliefs. At some point, governmental intrusion upon these areas would implicate legitimate expectations of privacy.” Since Miller, the government has greatly expanded the Bank Secrecy Act’s reach – and the 1976 decision was an as-applied challenge of the law as it was implemented at the time. FinCEN’s proposed regulation goes even beyond FinCEN’s other activities in non-cryptocurrency contexts. 

More important, in the decades since Miller, the Supreme Court has issued strong pro-privacy opinions in multiple cases, chipping away at the third-party doctrine in the context of the digital world. For example, it held in Carpenter v. U.S. that law enforcement must have a warrant to obtain location information from a cell phone company. The information that could be gleaned from bank data in the 1970s is a world away from the detailed picture of a person’s life that can be painted with access to digital financial transactions today.

Our financial transactions provide an intimate window into our lives – what organizations we donate to, what books and products we buy, who we support and even where we go. Recent images from the Hong Kong protests show pro-democracy protesters waiting in long lines at subway stations to purchase tickets with cash so their electronic purchases would not place them at the scene of the protest. These photos underscore the importance of financial privacy, and why we must protect our Fourth Amendment rights in the context of financial transactions. 

Source: https://www.coindesk.com/fincens-crypto-surveillance-rule-violates-us-constitution

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Following Coinbase And Bakkt: Winklevoss’ Gemini Reportedly Considers Going Public

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Cameron and Tyler Winklevoss are reportedly exploring the option of making their cryptocurrency exchange Gemini public. The brothers could follow the steps of other US-based digital asset-related companies with similar intentions, such as Coinbase and Bakkt.

Gemini To Go Public?

Bloomberg reported today that the founders of the US-based crypto exchange Gemini are open to the idea of going public.

“We are definitely considering it and making sure that we have that option. We are watching the market, and we are also having internal discussions on whether it makes sense for us at this point in time. We are certainly open to it.” – said Cameron.

Gemini, based in New York City, employs over 350 people. The exchange obtained a trust charter from the New York State Department of Financial Services shortly after its establishment and is licensed as a money transmitter in multiple US states.

Making a company public has been a hot topic within the cryptocurrency industry lately. Firstly, the largest US exchange Coinbase announced such plans with an estimated value of nearly $30 billion.

More recently, Bakkt, the Bitcoin futures trading platform owned by the Intercontinental Exchange, stated similar plans after a merger with a special acquisition company. Bakkt’s estimated enterprise value is at approximately $2.1 billion.

Gemini Releases A Credit Card With Crypto Rewards

The exchange also announced that it will launch a credit card that will provide users with cryptocurrency rewards. Dubbed Gemini Credit Card, it will enable up to 3% back in bitcoin and other digital assets. The rewards will be automatically deposited into the cardholder’s Gemini account.

The card comes after Gemini acquired Blockrize – a company specializing in building such products. The distribution will start later in the year, and the statement informed that there’s already a substantial waitlist with over 10,000 people requesting early access.

The card will work like traditional ones and will be available to US residents in every state while also accepted in merchants that accept regular cards.

“The Gemini Credit Card will make it easier for any consumer to invest in bitcoin and other cryptos without changing their existing behavior. Rather than deciding how and when to buy crypto, customers can do so when making their everyday purchases. We are excited to welcome the Blockrize team to Gemini and work together to continue to mainstream crypto.” – commented Tyler Winklevoss.

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Source: https://cryptopotato.com/following-coinbase-and-bakkt-winklevoss-gemini-reportedly-considers-going-public/

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FinCEN Extends Comment Window on Proposed Crypto Regulations

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With the initial deadline for comments long expired, FinCEN has decided to extend the comment period for its proposed controversial crypto regulation for an additional 15 days.

FinCen Sets New Deadline

The Financial Crimes Enforcement Network (FinCEN), an office of the U.S. Department of Treasury, announced the news of the extension via a press release on Thursday (Jan. 14, 2021). FinCEN’s earlier deadline was set on January 4, 2021.

Following the different requests for extension, it appears that FinCEN would not be hasty to implement the proposed regulation. The extension is beneficial for the industry, as affected entities can have time to analyze the proposal. Since the initial comment period, the bureau has received thousands of comments and is ready to receive more feedback.

An excerpt from the press release reads:

“FinCEN is providing an additional 15 days for comments on the proposed reporting requirements regarding information on CVC or LTDA transactions greater than $10,000[…] that involve unhosted wallets or wallets hosted in jurisdictions identified by FinCEN. FinCEN is providing an additional 45 days for comments on the proposed requirements that banks and MSBs report certain information regarding counterparties to transactions by their hosted wallet customers, and on the proposed recordkeeping requirements.”

The Proposed Regulations

FinCEN’s proposed crypto regulation required that cryptocurrency exchanges would keep records and verify “the identity of their customers if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.” Also, exchanges are expected to submit to FinCEN transactions that exceed $10,000.

However, the proposal saw pushback from the crypto community, with many saying that the rule was harmful to the industry. Companies like Jack Dorsey’s Square and Andreessen Horowitz opposed the rules, with Square noting that it could create unnecessary friction between crypto users and regulated entities.

Other comments noted that the original 15-days comment period was too short. As reported by CryptoPotato, days after FinCEN released its planned regulatory policy, U.S. crypto exchange Coinbase asked for an extension of the comment period.

According to Coinbase, the comment time frame was rushed and asked the bureau to instead consider a 60-day time frame. Also calling for an extension was a U.S. Senator and several members of Congress. The lawmakers also asked for an extension between 15-60 days to give concerned parties time to evaluate the proposed rule.

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Source: https://cryptopotato.com/fincen-extends-comment-window-on-proposed-crypto-regulations/

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Bulgarian Crypto Exchange Owner Sentenced To 10 Years in Prison for Laundering $5 Million

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A Bulgarian national was sentenced to serve ten years in prison after a major crypto-related fraud. Not long ago, the man was convicted in a transnational multimillion-dollar scheme to defraud over 900 American citizens.

An Auction Fraud That Victimized over 900 Americans

According to an official announcement by the United States Department of Justice, Rossen G. Yossifov, a 53-year-old man, had defrauded hundreds of American citizens during a well-masterminded illegal endeavor.

He managed and promoted the so-called RG Coins – a cryptocurrency exchange headquartered in Sofia, Bulgaria. Now, the US court has sentenced him for conspiracy to commit a Racketeer Influenced and Corrupt Organizations Act (RICO) offense plus a conspiracy to commit money laundering.

During the crime, Iossifov and his Romanian co-conspirators, part of the Alexandria Online Auction Fraud (AOAF) Network, engaged a large-scale online fraud. They organized a false auction that victimized at least 900 Americans during its course.

As CryptoPotato reported, Iossifov was officially charged with participating and dictating the international fraud a few months ago. 

Providing Favorable Crypto Exchange Rates To Victims

According to initial court documents, the scammers made everything seem legit, providing invoices with trademarks of reputable firms to their victims.

One of the primary ways to lure people into the scam was that the conspirators designed their scheme to cater to criminal enterprises by providing better exchange rates to the AOAF Network members.

The Romania-based fraudsters posted false advertisements to popularize online auctions for expensive goods and vehicles that did not exist. They had also established call centers to offer customer support to advise client questions and “alleviate concerns over the advertisements.”

When convinced, victims had to fulfill a payment. Domestic associates of the criminals would accept the money, convert them into cryptocurrency, and transfer them to foreign-based money launderers. As per the announcement, Iossifov was the final gear that facilitated the last stage of the scheme.

Some of the trial’s evidence revealed that, in less than three years, Iossifov had laundered nearly $5 million in cryptocurrency for just four of his partners.

“This represented over $7 million in funds defrauded from American victims. In return, Iossifov made over $184,000 in proceeds from these transactions”, read the official court publication.

Apart from Iossifov and the five co-operators, so far, 17 more members of the Romanian crime network will face court for their role in this scheme. Seven others have already faced sentences with verdicts between 30 to 96 months. Three of the members of the scam are fugitives.

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Source: https://cryptopotato.com/bulgarian-crypto-exchange-owner-sentenced-to-10-years-in-prison-for-laundering-5-million/

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