In late December, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) released a proposed cryptocurrency regulation, as had been rumored previously. The document indicated that, if adopted, virtual asset service providers would need to verify the name and address of non-custodial wallet users for any transaction exceeding $3,000.
This regulation was proposed to prevent “international terrorist financing, weapons proliferation, sanctions evasion, and transactional money laundering.”
The $100 billion company wrote in a letter dated January 4th that the implementation of this rule would be counterproductive.
This rule creates “unnecessary friction and perverse incentives for cryptocurrency customers to avoid regulated entities for cryptocurrency transactions,” Square wrote. By driving consumers toward unregulated platforms, FinCEN will “actually have less visibility into the universe of cryptocurrency transactions than it has today.”
Further, if FinCEN were to impose this rule on U.S. platforms, a double standard would be created.
Where financial institutions are only required to take and keep records for cash transactions over $10,000, this rule lowers that standard threshold to $3,000 for cryptocurrency transactions. Square wrote on this double standard:
“The incongruity between the treatment of cash and cryptocurrency under FinCEN’s Proposal will inhibit adoption of cryptocurrency and invade the privacy of individuals… This low threshold and its extension of KYC obligations beyond customer relationships is arbitrary and unjustified.”
Notably, the upcoming updates to the Financial Action Task Force’s (FATF) Travel Rule would require financial institutions (including, but not limited to cryptocurrency exchanges) to share customer data for transactions exceeding $3,000. The rule is not yet implemented.
Square Is Not the Only One Opposed to the Idea
Square is far from the only prominent detractor from the proposed ruling.
Last week, nine U.S. house representatives put their names on a letter issued to U.S. Treasury Secretary Steven Mnuchin. The letter suggests that FinCEN’s decision to only give the public eight business days over the holiday season to respond to the proposed ruling is irresponsible:
“The community most affected by this rule has long been a cooperative partner with FinCEN. They should be afforded the opportunity to make a productive and meaningful contribution in response to this specific proposal.”
The representatives that signed off on this letter include long-time Bitcoin proponent Warren Davidson, Darren Soto, and Tulsi Gabbard.
The nine representatives join the newly-instated senator from Wyoming, Cynthia Lummis, as prominent U.S. politicians that oppose the implementation of this rule—at least in its current state.
These members of Congress are also joined by investors such as Katie Haun, a general partner at renowned venture fund Andreessen Horowitz.
On Monday, Haun released a letter indicating that the regulation is “ill-advised” and will “have many foreseeable and unintended negative consequences.” She added that even if the ruling were to be implemented, it is drafted in a way that will “guarantee uneven application” and infringe on the Fourth Amendment.
According to CoinCenter executive director Jerry Brito, each comment will need to be thoroughly reviewed by the Treasury before the regulation can be implemented. If they “rush through finalization of the rule,” the “rule will be ripe for challenge in court.”
Whether it was in response to some of the comments or based on other factors is not clear, but on Monday, lawyer Jake Chervinsky shared that FinCEN had ended up extending the deadline for comments by another two days, shifting the closing date to January 7th. Chervinsky mused it may have been because the proposed ruling was published three days later than originally intended, which cut down the actual comment period from the promised 15 days to only 12 days.
There have been over 6,000 comments sent to the U.S. Treasury regarding this regulation. New comments will be accepted until Thursday.