In her latest broadside at crypto, Sen. Elizabeth Warren, D-Mass., has resurrected a controversial proposal from the end of the Trump Administration that would require the collection of personal data from private cryptocurrency wallets.
On Wednesday (March 9), the Massachusetts Democrat and frequent crypto critic tweeted that she was introducing a new anti-money laundering, or AML, bill “to ensure crypto isn’t used by Putin and his cronies to undermine our economic sanctions.”
I’ll be speaking soon with @Mitchellreports on @MSNBC about my new bill to ensure crypto isn’t used by Putin and his cronies to undermine our economic sanctions. Hope you’ll tune in! https://t.co/H8iTnA5Ulw
— Elizabeth Warren (@SenWarren) March 8, 2022
Read more: Sen Warren Calls DeFi the ‘Most Dangerous’ Part of Crypto at Senate Hearing
However, one part of that legislation would “seek to make it easier to verify the identities of customers and transfers to private crypto wallets by requiring financial institutions to keep detailed records and submit reports to the Treasury Department,” NBC News reported.
That means exchanges, banks and other money services businesses would be required to collect know-your-customer (KYC) data identifying the owners of private digital wallets.
That information is already collected by exchanges from customers who make transactions to or from their exchange accounts’ hosted wallets.
Midnight Rule
That makes it very nearly identical to a rule proposed on Dec. 18, 2020, by then-outgoing Treasury Secretary Steven Mnuchin for the U.S Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, requiring exchanges and others to collect AML/KYC data on any transaction over $3,000.
That led to an outcry, both by those who felt it was an unwarranted invasion of privacy — industry opinion was decidedly mixed in that regard — as well as others upset by the timing and process of the rulemaking.
Aside from the lame duck nature of the rule in the waning days of the administration, FinCEN initially established 15-day comment period before the rule would take effect. It died after President Joe Biden froze all rule-making in the early days of his administration.
That was a practically unheard-of timeframe — at least 30 and often 60 days is the norm — and those 15 days included both the Christmas and New Years’ holidays.
The “rule addresses substantial national security concerns,” Mnuchin said, adding that it “aims to close the gaps that malign actors seek to exploit in the recordkeeping and reporting regime.”
Compare that to Sen. Warren’s comment that her bill was “critical” given that digital assets “allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion.”
Support and Opposition
The actual industry reaction to the 2020 proposal was fairly mixed.
Top venture capital firm Andreessen Horowitz (a16z) objected to both the rule and the haste with which it was rushed through.
“The new rule, ostensibly aimed at fighting financial crime, would require various cryptocurrency entities to collect and report detailed personal identifiable information of their customers’ counterparties, a standard applied to no other sector of the financial industry today,” it said in a release.
At the time, the company promised a court challenge, with partner Kathryn Haun — a former federal prosecutor — tweeting that “as proposed the rule is more likely to hinder the prosecution of financial crime by driving it offshore & making it harder to trace.”
6/ FinCEN should reconsider & instead engage in meaningful consultation with the crypto industry to assist in fighting financial crime. As proposed the rule is more likely to hinder the prosecution of financial crime by driving it offshore & making it harder to trace
— Kathryn Haun (@katie_haun) January 5, 2021
BlockTower Capital co-founder and CIO Ari Paul, on the other hand, tweeted “FinCEN’s proposed crypto AML/KYC rules … have basically no impact on the industry from my perspective. Institutions have to implement rules very similar to what they have to do for fiat.”
FinCEN’s proposed crypto AML/KYC rules are the mildest version discussed, and have basically no impact on the industry from my perspective (although they may cause some minor problems for specific companies) https://t.co/YGzmpbjzTG. /1
— Ari Paul ⛓️ (@AriDavidPaul) December 18, 2020
Adding that the rule would likely have minimal impact, he pointed out that no reference was made to transactions between two unhosted wallets, only those involving institutions like an exchange.
Nor, he added, did the proposal apply to pee-to-peer transactions between two private wallets.
Of course, one factor that did play into the discussion in 2020 was decentralized finance, or DeFi, which generally bypasses all AML requirements because there is no central authority to impose sanctions on. It barely existed at the time.
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