US Senate bill on “any digital exchanger or tumbler of digital currency”

For me (not from or in the US), I see this as US Congress legitimising cryptocurrencies. If not fully, at least partially.

Keeping legislation up to date with the latest methods of money laundering is their job. Digital currencies (in all of their forms) are the latest methods used. Therefore, including them specifically in legislation will help law enforcement combat money laundering.

This will mean exchanges will need to cooperate with US agencies, if they operate any business in the US, and provide records of holders and balances, etc.

This reduces risk for the businesses and individuals. At the moment, it's like the wild west (e.g. bankruptcies at Mt Gox and Cryptsy, large scale wallet thefts, WannaCry, etc.). Enabling US law enforcement to subpoena records from these exchanges will mean the 'dark money' moves out, and legitimacy takes it's place.

I see this as a good thing. For those of us NOT laundering money through cryptocurrencies, this adds to the argument that they are legitimate replacements for the existing currencies of the world to perform transactions.

That's how I see it from a completely external perspective.

I think this is mostly targeted at prepaid Visa cards which are very commonly used for money laundering.

I keep my wallets in a private cloud. I don't see how a border agent could know they exist.

I think the bigger question is 'does dark money enable crime?'. If the answer is yes, then we as a tech community need to consider the impact of legitimizing cryptocurrent and enabling unfettered criminal enterprise.

I don't see why everyone here would be in favor of this bill. Not only does it expand civil forfeiture, it also turns almost everyone who works or runs a legitimate business into a criminal. Everyone here seems to want more government, laws and regulations that will be used against regular people who would otherwise be law abiding citizens.

Money laundering in practical terms means whatever the government wants it to mean. It has been successfully prosecuted as the simple deposit of funds the government doesn't like the origins of. The obstacle isn't law, it's the resources required to bring a successful case.

This is clearly going after services like shapeshift.io. If you are unaware, shapeshift lets you transact between various cryptocurrencies on an exchange. The exchange doesn't hold record of the transactions, so you could legitimately buy BTC with a coinbase account linked to your bank account, exchange it to lite coin (or any other currency to) and have it deposited in a wallet you created anonymously, then exchange it back to BTC but to yet again an anonymously created wallet. At most it nips away a couple of percent, and now your BTC cannot be traced back to you even though you bought it with a bank account linked to your name. Its the easiest laundering that has ever existed. This bill would force shapeshift IO to maintain transaction records, game over.

I wonder if this applies to the latest generation of anonymous cryptocurrencies like Monero and Zcash, where the "exchanger or tumbler" is built in. Monero, in particular, supports only anonymous transactions: sender, receiver and amount are all hidden.

https://en.wikipedia.org/wiki/Monero_(cryptocurrency)#Privac...

Reading this is painful, is there any way to turn

"inserting before the semicolon at the end the following: “, or any digital exchanger or tumbler of digital currency”;

into a proper diff?

This is a far-reaching bill that gives the Feds much more discretionary authority over digital currencies. The reason it's so far reaching is that it tweaks definitions that are embedded in thousands of pages of existing laws and regulations. It's like changing stdio.h in C--one tweak could have a big impact throughout an entire system.

So let's wade through it.

Federal law (31 USC 5312) currently regulates "financial institutions," which are defined as including banks, credit card companies, insurance companies, securities dealers, loan issuers--and that's not even an exhaustive list! One of the categories that's currently regulated is: "an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments."

The legislation would rewrite that definition to include:

  (K) an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, prepaid access devices, digital currency, or similar instruments, or any digital exchanger or tumbler of digital currency;

Another definition that gets changed is "monetary instruments," which expands to include prepaid access devices:

  as the Secretary may prescribe by regulation, coins and currency of a foreign country, travelers’ checks, bearer negotiable instruments, bearer investment securities, bearer securities, stock on which title is passed on delivery, prepaid access devices, and similar material...

Prepaid access devices is a term of art that would now be defined broadly as:

  an electronic device or vehicle, such as a card, plate, code, number, electronic serial number, mobile identification number, personal identification number, or other instrument, that provides a portal to funds or the value of funds that have been paid in advance and can be retrievable and transferable at some point in the future.

I don't know what the good senators are intending, but that seems pretty broad, and likely broader than necessary if their goal was to target prepaid Visa cards. Is a Bitcoin wallet "paid in advance" and "retrievable and transferable at some point in the future?" I'm not saying it necessarily is--what I am saying is that it's like wildcard matching when doing an 'rm -f', always a little dangerous. Better to be specific than something like any "portal to funds."

Fincen (part of Treasury) said in 2013 that "A person's acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies." But that was based on the old definition, not the newly broadened one. (https://www.fincen.gov/resources/statutes-regulations/guidan...)

Now let's walk through some of the existing laws that reference these new definitions. A good start is the long list of existing Title 31 regulations primarily aimed at banks that would now get levied on any "issuer" or "redeemer" or "exchanger" of digital currency. That includes the obligation to:

- "Verify[] the identity of any person seeking to open an account" (31 USC 5318)

- "Maintain[] records of the information used to verify a person’s identity, including name, address, and other identifying information" (31 USC 5318)

- "Report any suspicious transaction" to the Feds (31 USC 5318)

- "Establish anti-money laundering programs, including, at a minimum" developing internal policies, compliance officer, training program, and independent audits (31 USC 5318)

- File reports on transactions (31 USC 5313)

- "Maintain appropriate procedures to ensure compliance with this subchapter and regulations prescribed under this subchapter" (31 USC 5318)

- "Guard against money laundering" (31 USC 5318)

- Allow the examination of "any books, papers, records, or other data of domestic financial institutions" related to reporting requirements (31 USC 5318)

- Be summoned by Treasury to "produce such books, papers, records, or other data" and give testimony under oath up to 500 miles away (31 USC 5318)

Note that many of the above sections of existing law give a heck of a lot of authority to the Treasury Department. Treasury could cough up very specific and narrow regulations that would lessen the impact. Or Treasury could follow the statutory text (aka go big or go home).

The bill also expands the sweep of existing criminal law. Existing criminal law (31 USC 5324) prohibits any attempt to "structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions." (Structuring is defined as "evading the reporting requirements" in which banks tip off the Feds that you're, say, moving high volumes of cash.)

Because an "issuer" or "redeemer" or "exchanger" of digital currency is now a financial institution, if you or I tried to dodge reporting requirements, we'd be looking at a federal felony punishable by up to 5 years in prison. Note that many other sections of Title 31 grant the Treasury Department discretion in rulemaking, so the blow could be lessened. At first glance this section does not seem to be one of those.

The bill also means that no financial institution (remember this now includes any "issuer" or "redeemer" or "exchanger" of digital currency) would be allowed to "issue" any "monetary instrument" (which includes any code "retrievable and transferable at some point in the future") unless "the individual furnishes the financial institution with such forms of identification as the Secretary of the Treasury may require." (31 USC 5326)

I'm getting a bit tired but did want to raise the question of whether or not the 31 USC 5332 rules against moving cash across the U.S. border now extend to digital currencies.

One section of the bill requires CBP to devise a "strategy to interdict and detect prepaid access devices, digital currencies, or other similar instruments, at border crossings and other ports of entry for the United States." (Emphasis added)

Existing law punishes anyone who: "Attempts to transport or transfer such currency or monetary instruments from a place within the United States to a place outside of the United States" -- and remember, "monetary instrument" is newly expanded. At least this seems at first glance to target only physical border-crossing and not electronic, and to require intent to evade reporting requirements. Would you have to declare a cold storage wallet if one happened to live on your electronic device? (CBP's forensic searches and scans just got a bit more worrisome...)

Anyway, that's my quick take. I may be wrong on some items--as I'd like to be! That means this bill would not be as broad and potentially worrisome as it seems to be at first glance.

I wish I understood this language