Get us up to speed. Why did FinCEN decide to come up with the proposal in the first place? Boring: This is something that was actually being spearheaded by the former secretary of the Treasury, Steve Mnuchin. And there were geopolitical as well as political motivations behind these proposed rules.
How blockchain advocates stopped FinCEN’s ‘crypto wallet rule’—for now
As you know, Steve Mnuchin served as part of the Trump administration, who is no longer in office. It is very typical when you have one administration leaving and another one coming in to have midnight rulemakings, and this was a part of that. What I believe is that Secretary Mnuchin, or former Secretary Mnuchin, wanted to leave a legacy as he was leaving office as hard on crypto. There were also rumors of some geopolitical forces that played a role in this as well. But the idea is that there was pressure from the international community to clamp down on bitcoin and this was one way they were going about that.
And two, it would have major unintended consequences for an incredibly important, nascent and emerging ecosystem. Boring: Yes. To kind of go back through what actually happened here, Secretary or former Secretary Mnuchin was not going to have any comment period at all. Mind you, this is an incredibly comprehensive set of rules — plus pages of new regulations that would impact every single money service, business and bank that has virtual currency transactions going through their system.
They wanted to publish it as an interim final rule, meaning no comment period. That is part of the point of a comment period. So we put pressure to get that comment period. I know my team deleted their entire vacation to be able to address that. And our voices were heard and that comment period ultimately was extended for a full 60 days. We asked for that in our comment letters. We sent another separate letter directly to Secretary Mnuchin, and we had many people call his office directly and ask for that. And we made a true impact in having this follow a proper policy process.
The industry has moved at such quick pace, there is not only U. And they want some feeling of being able to apply standards and rules. But what are some of the things that FinCEN is asking to do? And in your view, what is the impact of that on innovation? What would be wrong with that?
Boring: FinCEN was the first regulatory agency to issue guidance on convertible virtual currencies like bitcoin.
So they issued the first guidance on March 18th of , and they have issued many other pieces of guidance since then. FinCEN has been one of the most proactive regulators in this space. They have the jurisdiction they need to address criminal activity, leveraging cryptocurrencies and blockchain technology. There are many, many, many incidents where FinCEN has been effective in bringing the law against criminals that are abusing this technology for nefarious purposes. You can see that in the courts. This overhaul, in many ways, was not necessary and would be ineffective.
They need all that information, plus the transaction hash and the wallet address. And that is what is an overstep and potentially would create what I would argue, a surveillance state, which is absolutely not appropriate. This would be a change and in the relationship between the citizens and the regulators. If you take a look at the industry, blockchain is very transparent — you can see every transaction. Boring: Yeah, it absolutely is, and blockchain technology has already proved to be a boon to law enforcement.
Again, FinCEN has the tools they need to have jurisdiction over this space and to apprehend criminals who are abusing this technology for nefarious purposes. The laws work. There has been many, many instances where we can show that law enforcement has been effective with the tools that they had. Lau: We now have a new U. This is by reputation, her style. How have you found this new administration, new leadership, working with both this FinCEN proposal and other policies as it relates to digital assets and blockchain?
She still has to go through that nomination process, as well as many other key regulatory agencies like Gary Gensler, who likely will take the helm at the SEC. It is a little too early to tell, a lot of these positions have not been solidified through the nomination process.
For example, Gary Gensler has published a number of papers while serving in an academic capacity at MIT. One of the things that I see is a big positive, if we have people who are educated, who understand this industry at a technical level, which is a plus, because when we go in, we have issues or we need to communicate our challenges to them, we will be able to have a more sophisticated conversation and really talk about the substance of what is needed in law.
However, bitcoin and blockchain and crypto is not a part of the Biden-Harris day plan. We do hope blockchain technology will be a priority. We do think we need to make blockchain a priority in this country to ensure that we can compete on the global landscape.
But remember, blockchain is not and it should not be a political issue. This is about technology. This is about jobs. This is about the economy and about innovation. It should not be about partisan politics on the left or the right. We want to focus on the technology and the merits of what this brings to the economy, and not turning this into a partisan issue. It is interesting the framing of cryptocurrency by not only government, but also legacy industries and institutions have been very interesting. Especially with the rise of central bank-backed digital currencies. But I absolutely hear you on the technology.
Policy as it impacts technology is increasingly one of the big concerns coming out of the industry. This is something that you and I have talked about as the proposed rule that FinCEN is currently considering. There is a lot of potential impact on innovation, including a really fast-moving space called decentralized finance, DeFi.
And in speaking with a lot of the blockchain thought leaders joining Forkast , predicting that regulating DeFi is going to be something that regulators will want to focus on. So where do you see that? How could this also squash innovation? And what are the things that need to be considered?
The FATF has proved that mutually-acceptable solutions to AML and terrorism financing can be found.
Boring: Yeah Angie, you highlight a really good point, which are what are the unintended consequences of a rushed rule? And the intention of this would be to protect the financial system. But at what cost are we doing that? This absolutely would have a major impact on any type of smart contract-based system in the entire DeFi space. A day comment period is not sufficient time to understand or unpack that. The rule also talked about the cost of implementing this rule.
In 15 days, we were able to pull some data from our members about the increase and compliance cost.
Why the FATF Travel Rule Shows the FinCEN Crypto Wallet Rule Can Work | Finance Magnates
So this is something policymakers constantly have to grapple with. We absolutely need to have a strong rule of law. That is the right thing to do. But you also have to ensure that we are not disincentivizing innovation or encouraging innovators to leave the United States altogether.
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So this FinCEN rule, specifically, the one aspect of having to report personal information to FinCEN, both on the customer side and then also, both on the buy and sell side. Role of the Treasury. Organizational Chart. Orders and Directives. International Affairs. Terrorism and Financial Intelligence. Inspectors General. Strategic Plan. Agency Financial Report. Inspector General Audits and Investigative Reports. Prior Treasurers. The Treasury Building. Freedman's Bank Building.