The FinCEN Proposal and Its Constitutional Implications
The Creeping Bureaucracy Continues to Erode Privacy and Freedom
Introduction
On October 19, 2023, the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury unveiled a Notice of Proposed Rule Making (NPRM) with the objective of combating money laundering in the context of Convertible Virtual Currency Mixing (CVC mixing). While the proposal aims to enhance transparency and thwart illicit actors, including terrorist organizations like Hamas, Palestinian Islamic Jihad, and the Democratic People's Republic of Korea (DPRK), it has raised significant concerns. This post aims to elucidate the key points of the proposal, explain why it violates the U.S. Constitution, and argue why opposition, especially from the Bitcoin community, is justified.
The FinCEN Proposal: Key Points
The FinCEN proposal seeks to address the issue of money laundering and terrorist financing via CVC mixing services, which allow users to obscure the origin and destination of virtual currency transactions. The proposal establishes the use of Section 311 authority to target CVC mixing as a class of transactions of primary money laundering concern. It mandates that covered financial institutions report information about transactions involving CVC mixing outside the United States when they have reason to suspect such activity.
Why It Violates the U.S. Constitution
Fourth Amendment Violation: The Fourth Amendment of the U.S. Constitution protects against unreasonable searches and seizures. By requiring financial institutions to report transactions based on mere suspicion of CVC mixing, the proposal raises concerns about warrantless surveillance and potential violations of individuals' privacy rights. It is a clear breach of the Fourth Amendment's protection against unreasonable government intrusion into private financial affairs.
Due Process Concerns: The FinCEN proposal empowers the government to designate certain financial transactions as suspect, without clear guidelines for what constitutes "reason to suspect." This lack of precision in defining the threshold for reporting transactions raises due process concerns. It is crucial to ensure that individuals are not deprived of their property or liberty without fair procedures and legal safeguards, which this proposal may undermine.
Chilling Effect on Financial Privacy: The proposal's impact extends beyond regulatory compliance for financial institutions. It has a chilling effect on financial privacy, discouraging individuals from engaging in lawful activities due to the fear of unwarranted scrutiny. This infringes upon the rights of citizens to conduct legal financial transactions without unnecessary government oversight.
Why Opposition is Justified, Especially for Bitcoiners
Preserving Individual Rights: Bitcoiners prioritize individual rights, including financial privacy and freedom from government overreach. The FinCEN proposal threatens these fundamental rights and is seen as an unwarranted intrusion into private financial matters.
The Slippery Slope: Bitcoiners are concerned about the precedent that this proposal may set. Once the government gains the power to designate certain financial activities as suspicious, there's a risk that such powers may be expanded to include a broader range of transactions in the future, further eroding personal freedoms and possibly even the self-sovereign use of Bitcoin.
Ineffectiveness: Critics argue that the proposal's focus on increasing transparency may be ineffective in combatting money laundering by determined malicious actors. Instead, it may primarily affect law-abiding citizens and businesses, while those engaged in illegal activities may continue to find ways to evade detection.
Conclusion
The FinCEN proposal, aimed at addressing money laundering and terrorist financing through CVC mixing, raises valid concerns about its compliance with the U.S. Constitution and the potential for encroachment on individual liberties. While the government's goal to combat illicit actors is laudable, the proposal's implications for financial privacy and due process rights warrant opposition, particularly from the Bitcoin community. It is essential to strike a balance between security and personal freedoms, ensuring that regulations do not infringe upon the rights enshrined in the Constitution. There is still time to write a formal comment here (I recommend using Chat GPT to craft an appropriate letter - you can submit anonymously). If you feel as strongly about this as I do, I’d highly recommend submitting a comment.
Not financial or legal advice, for entertainment only, do your own homework. I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2023.
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