Rushed Rule-Making Damages Democracy & Neuters Crypto
Comments on FinCEN’s proposed rule-making to extend KYC requirements to non-custodial wallets.
January 3, 2021
To whom it may concern:
I am a U.S. citizen and fintech entrepreneur residing in Marin County California. I am also a US-trained attorney, and have built and managed the compliance programs for two FinCEN-registered MSBs, Uphold (originally launched as Bitreserve in 2013) and Airtm (2015). I have also co-founded and/or funded several other digital money apps, platforms, and protocols since 2013, most notably Cadoo, Slyk, and Air Protocol.
Prior to my career in fintech I built tech startups in Mexico backed by one of that country’s best-known entrepreneurs, Ricardo Salinas-Pliego, Chairman of Grupo Salinas. Among these startups was Mexico’s first fintech, Todito Cash, a reloadable pre-paid digital Peso account founded in 2002.
My father was a political refugee from Iran who arrived in the US in 1963. My father’s escape from authoritarianism, as well as my service in the Peace Corps (Guatemala, 1993–1995) and my 13 years living in Mexico, has given me a deep and enduring appreciation for the United States. My greatest admiration is for our nation’s respect for both individual freedoms and the rule of law, the twin dynamos powering our world-inspiring prosperity.
This letter is my comment on the proposed rule to implement a new recordkeeping rule for convertible virtual currency (CVC) transactions over $3,000 and apply existing currency transaction report (CTR) requirements to CVC transactions over $10,000.
- Midnight rule-making that threatens innovation, freedom, and privacy is contrary to the values and principles of our American exceptionalism. Rushed rule-making will chase fintech founders and venture capital out of the U.S. and make our citizens and businesses poorer, less free, and less safe.
- The $3K CTR requirements will make the U.S. fintech industry less competitive, impairing many lawful cryptocurrency use-cases that are otherwise well-aligned with U.S. values, principles, and foreign policy. Airtm’s global network of anything-to-dollar forex agents (relied upon by 500K+ families and small businesses in Latin America) would be materially less effective under the proposed rules. Cryptocurrency donation campaigns such as Airtm’s AirdropVenezuela would be similarly impaired.
- Rushed rule-making that is incongruent with legacy CTR requirements will accelerate U.S. citizens’ opting out of the regulated financial system via self-custody of cryptocurrency and decentralized peer-to-peer crypto/dollar exchange protocols. Trust in institutions by U.S. citizens is justifiably very low and falling fast. Decentralized crypto/fiat exchange protocols — Bisq, Hodlhodl, AirProtocol — combined with self-custody of cryptocurrency will increasingly be used by individuals and businesses seeking refuge from the over-reaching financial surveillance of the proposed rules.
Rushed Rule-Making Damages Democracy
Laws restrict individual freedoms in the hope of collective benefit. As a check on that power of the collective over the individual, law-making in the U.S. has always been political, i.e. contentious, slow, and marked by compromise. This is by design. Midnight rule-making with curtailed comment periods is contrary to this design.
It is also contrary to the values and principles that have produced our American exceptionalism. We innovate faster, work harder, and lead the world because we can rely on the stability of the American platform — free markets, rule of law, constitutionally-protected liberties. Legislation by dictate debases this foundation of our exceptionalism as surely as the Fed’s recent unprecedented money printing debases the dollar.
Having set up and led compliance programs for two FinCEN-registered startups, I can confidently attest that the heavy regulation of financial service providers impedes innovation. It favors incumbents who can easily bear the cost of compliance over startups struggling to find product/market fit. It discourages founders with its ongoing reporting requirements and the threat of toothy civil and criminal penalties.
Adding rushed new rules that limit the lawful utility of cryptocurrency to the already heavy load borne by fintech startups is unwise. It will result in fintech founders and the venture capital that backs them migrating to more innovation-friendly jurisdictions. The resulting reduction in innovation and competition in the financial sector guarantees higher costs, worse service, fewer options, increased concentration, and more risk for U.S. citizens and businesses.
To quote Coin Center’s cogent comments: “Administrative rule making is by its nature an undemocratic and potentially unaccountable activity through which an unelected bureaucracy, exercising broad delegated powers, enacts law that is binding on individuals with few if any checks.”
$3K CTR Castrates CVC Utility
The proposed $3K CTR requirement for CVC is an unjustifiably lower threshold than for legacy payments ($10K) and more onerous (less flexible) with regard to record-keeping requirements. It impairs two lawful cryptocurrency use-cases with which I have direct experience from Airtm’s large user-base in Venezuela and other harsh currency regimes: 1. peer-to-peer forex and 2. Cryptocurrency donations.
Airtm Agent Network
Since 2015, Airtm has provided a dollar-denominated account that is as globally accessible as email. We have helped 500K+ families and businesses in Latin America save, send, and receive dollar payments.
Our network of anything-to-dollar forex agents make it fast, cheap, and easy for Airtm clients to deposit/withdraw local money to/from their dollar-denominated Airtm account. This is especially useful in harsh currency regimes such as Venezuela where government-rigged exchange rates render the national banking system useless for dollar payments, remittance, or donations.
Airtm agents cycle minor currencies received servicing client deposits (e.g.Venezuelan bolivares, Argentine pesos, Indian rupees) to bitcoin (and other cryptocurrencies) using localbitcoins, a peer-to-peer anything-to-bitcoin exchange platform, as well as decentralized peer-to-peer fiat/crypto exchange protocols, i.e. Bisq and HodlHodl.
Although the average Airtm transaction is around $50, our agents aggregate volume when cycling minor currencies back to USD in their Airtm account via CVC. The platforms and protocols used to exchange minor currencies for CVC often do not provide the identifying information required under the proposed rules.
Both the proposed $3K CTR threshold and the extraordinary record-keeping requirements would therefore materially impair the operation of our agent network and their ability to cycle funds to assist more Airtm clients.
For more details on the Airtm agent network, see Scaling Stranger-to-Stranger Services.
In 2018 Airtm organized a crypto donation campaign that resulted in over $300K in crypto being distributed to 60K+ ID-verified Venezuelans suffering from the ravages of the world’s worst hyperinflation. Anonymous donations over $3K, of which there were many, would not have been possible under the proposed CTR requirements. Many large CVC holders would not have donated if required to disclose their identity due to privacy concerns.
A logical revision to the proposed rule-making would be to align legacy and CVC requirements, raising the CVC reporting threshold to $10K and allowing the same flexibility with regard to reporting requirements.
See Airdropvenezuela.org for more details.
Stronger Surveillance, Bigger Blindspot
Bitcoin’s original purpose, as stated by its anonymous creator Satoshi Nakamoto, was to provide a peer-to-peer digital cash system that removed the need for reliance on financial intermediaries such as central banks, banks, remittance companies, and even fintech ventures like Uphold and Airtm.
Since the publication of the bitcoin white paper in 2008 in the wake of the global financial crisis, trust in institutions has declined rapidly. More recently, suspicions of presidential election tampering, deplatforming of dissident views by social media and payment companies, flawed Coronavirus policy at every level of government, a pandemic-cratered economy, and the unprecedented debasement of the dollar have all accelerated this distrust in institutions.
There is already a large and active subset of cryptocurrency users who self-custody and use anonymous services like Bisq and HodlHodl to convert crypto to fiat and vice versa. The proposed midnight rule-making and increased invasion of privacy required by the $3K CTR and record-keeping requirements will push many more people to do the same, enlarging the blind spot of law enforcement and regulatory agencies.
Citizens fearful of having their wealth confiscated or transactions censored will see this rushed rule-making and the expansion of financial surveillance it entails as a signal to go dark.
For all the aforementioned reasons, FinCEN must not adopt these proposed changes.