Virtual Currencies and the Rule of Law

During the last weeks of the Trump Administration’s Treasury Department, the Financial Crimes Enforcement Network (FinCen) unveiled a rule that received more comments than any other proposal in FinCen’s history. Over seven thousand commentors weighed in, despite only a 15-day comment-period stretching over the Christmas and New Year’s Day holidays. The proposed rule would impose certain Bank Secrecy Act reporting requirements on unhosted virtual currency wallets. (An unhosted wallet is the digital equivalent of a physical wallet, whereas a hosted wallet is the equivalent of a brokerage account.) Opponents argued that the proposed rule violated privacy rights, was ineffective, inhibited innovation, and violated the Administrative Procedures Act. Proponents asserted the proposed rule and its abbreviated review period were necessary to limit money laundering, and other illicit activity.

This disagreement represented a shift in positioning between the virtual currency industry and the regulators. Previously, many virtual currency adherents had argued its unique characteristics made standard regulations inapplicable. Regulators generally disagreed, imposing traditional financial regulatory frameworks such as the Howey-test, know-your-customer, and money transmitter requirements. Now virtual currency advocates claimed they were being singled out unfairly, and instead should be treated as their equivalents in the traditional financial system. Regulators argued that the unique characteristics of virtual currency justified a more stringent approach. This debate has significant consequences for the scope of government, combatting terrorism and other unlawful activity, personal privacy, and the future of money.

Featuring:
-- Sujit Raman, Partner, Sidley Austin
-- Jaikumar Ramaswamy, Head of Risk, cLabs
-- Shannen Coffin, Chair, Appeals and Advocacy, Steptoe
-- Moderator: Paul Watkins, Managing Director, Patomak Global Partners