The U.S. Department of Justice’s (DOJ) framework, which was released earlier this month, entails details about the US government’s approach to crimes committed using cryptocurrencies. But, it also appears to give a definition of some broad policy positions on crypto as well as crypto exchanges more generally. It is being called “a complete disaster for privacy and anonymity and civil liberties in the cryptocurrency space,” by Marta Belcher, special counsel to the Electronic Frontier Foundation (EFF).
The attorney with Ropes and Gray and an outside counsel to Protocol Labs, Belcher, said the framework released earlier this month raised several concerns about privacy rights. A point was raised about the language employed on peer-to-peer exchanges, mixers/tumblers and “anonymity enhanced cryptocurrencies” (privacy coins). There are a number of legal concerns with the crypto enforcement according to Belcher, and also according to the framework as laid out by the DOJ’s Cyber Digital Task Force.
The framework that was laid out also had a section on mixers and tumblers. This was noting that entities qualifying as money services businesses are subject to the BSA or “similar international regulations.” The framework has come out the same month as another report detailing the US’s intent to go after crypto wallet holders on tax evasion chargers.
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DOJ Framework on P2P exchangers
According to DOJ’s crypto framework, a P2P exchanger is considered a money services business, which needs it to abide by recordkeeping and reporting requirements as defined by the Bank Secrecy Act (BSA) and other regulations if they buy or sell convertible virtual currencies.
“Individual exchangers – as well as platforms and websites – that fail to collect and maintain customer or transactional data or maintain an effective AML/CFT program may be subject to civil and criminal penalties,”
DOJ framework referring to anti-money laundering/combating the financing of terrorism regulations
The distinction is between “software providers” and “service providers,” Chervinsky said. Software providers, which compose a large part of the crypto industry, deploy decentralized protocols and publish open-source projects that the writers cannot control or modify.
In Belcher’s view, the DOJ crypto framework puts both individuals who write code for peer-to-peer transactions as well as those who use this code at risk for enforcement actions.
“There’s liability on people using these exchanges in order to exchange cryptocurrencies anonymously with others. To say I can’t send you cryptocurrency using a script, you and I can’t transact with each other directly in a peer-to-peer way without that data being collected somewhere by a third party is a complete affront to privacy and civil liberty.”
Marta Belcher
According to Belcher, individuals can easily conduct similar transactions using cash. “No one questions that I can hand you money without needing to have a written record of that.” she said.
Encryption
The arguments laid out by DOJ against cryptocurrencies are similar to those made against encryption. Belcher told CoinDesk.
“[The enforcement framework is] making exactly the same argument you’ve seen being made for decades about encryption. These are the exact same arguments that are against encryption and they’re coming from the exact same place as the fight against encryption.”
DOJ framework’s aim at privacy protections
The DOJ’s framework talked about privacy coins and other tools to obfuscate transactions, like mixers and tumblers. According to her, it is wrong to focus on whether privacy coins can be compliant with the BSA and other laws.
“The thing that is so important for me is that you can transact anonymously and you can take the protections of cash and you can transfer that to the online world,” said Belcher.
According to her, “The idea that merely by exercising your right to transact anonymously is indicative of you committing a crime is wrong in my view.” Chervinsky agreed in a CoinDesk report, noting that Harmon was treated like a service provider, not a software provider.
DOJ’s Framework on Financial censorship
According to Belcher, the DOJ’s framework can help contribute to financial censorship, an ongoing issue within the U.S.
“There are all these examples of a kinky bookstore or a nonprofit that supports LGBT fiction getting their accounts shut down by Visa and Mastercard, and also famously things like WikiLeaks that then turn to cryptocurrency when they can’t be served by the financial intermediaries that are censoring that,” said Belcher.
She also noted, saying that these transactions aren’t illegal.
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