A banking law passed in the early 70s could have detrimental consequences for the Bitcoin mining industry in the United States.
The U.S. government has long been imposing strict anti-money laundering and know-your-customer regulations on the crypto industry.
However, none of those laws have been enough to stomp the development of the sector, which has been flourishing despite tight regulations.
However, the country has a law in place that, if applied, could have serious consequences for the crypto space.
According to MIT Technology Review, the U.S. government could, someday, try and use the law to impose stricter control over the use of certain blockchain-based cryptocurrencies.
Passed by the U.S. Congress in 1970, the Bank Secrecy Act (BSA) requires financial institutions in the United States to collaborate with the government when investigating cases of suspected money laundering and fraud.
The purpose of the law, also known as the Currency and Foreign Transactions Reporting Act, is to prevent ‘financial institutions,’ i.e. banks, from becoming intermediaries in illicit activity.
The BSA, therefore, mandates that institutions collect private information about their users and report it to the U.S. Treasury Department.
Expanding the government’s grip of cryptocurrencies under the BSA
David Murray, the vice president of the Financial Integrity Network, testified before a subcommittee of the U.S. Senate earlier this week and called for stricter control over the use of cryptocurrencies.
Murray, whose Washington-based company focuses on combating illicit finance, said that cryptocurrencies are becoming a go-to means to fund human trafficking operations.
Crypto payments, Murray said in his testimony, allow for greater anonymity and are almost impossible to track.
“Virtual assets are vulnerable to illicit finance because they offer rapid and irrevocable settlement and the potential for anonymity,” he said.
To combat this, Murray suggested expanding the government’s oversight over the crypto industry under the BSA.
As most digital currencies are traded through decentralized networks and have no central oversight body, it’s easy to use such networks to facilitate illegal transactions, he explained.
If the Treasury Department was to broaden the BSA’s definition of ‘financial institutions’ to include certain cryptocurrency service providers, it would be much easier to control and sanction illegal activity.
In his testimony, Murray mentioned several types of service providers, but one group that stood out was ‘virtual asset transaction validators.’
These ‘validators,’ as Murray calls them, are Bitcoin miners.
So why haven’t they done it yet?
If brought into the scope of the BSA, miners could become ‘gatekeepers’ for virtual asset systems and would be required to disclose information about the transactions they validate on the blockchain.
However, Coin Center’s director of research, Peter Van Valkenburgh, said that this would “basically make the technology nonviable.”
First, locating and identifying all of the miners on the Bitcoin network would be almost impossible, he said.
Even if the government managed to locate all Bitcoin miners in the U.S., there is a very slim chance it could actually enforce the law.
Miners, Valkenburgh said, would just move to places with more lenient laws.
Finally, it wouldn’t make sense to force miners to keep track of transactions on the blockchain the same way a financial institution would keep track of its clients.
Miners don’t really have customers, he explained, as they are just running the protocol in hope of a reward.
Apart from that, using the BSA to regulate cryptocurrency software developers and individuals would be unconstitutional.
The good news is that the U.S. Treasury Department has “long had the power to broaden the BSA’s definition of a financial institution to include cryptocurrency miners” but has thus far explicitly chosen not to do so.