Before U.S. President Joe Biden signed the Infrastructure Investment and Jobs Act into law in November, many groups spoke out against a provision that broadens the tax code’s definition of “broker.” But there is another hidden cryptocurrency provision in this new law that amends part of the tax code in a way that will greatly expand financial surveillance, criminalize certain cryptocurrency transactions and, in my view, violate the Fourth Amendment of the U.S. Constitution.
This provision alters Section 6050i of the tax code, which requires businesses that receive more than $10,000 in cash to collect identity details of the person paying in cash and report the transaction to the government. Failure to comply can be a felony punishable by up to five years in prison. The Infrastructure Investment and Jobs Act expanded 6050i to include anyone who, in the course of conducting business, receives over $10,000 in digital assets.
Marta Belcher (@MartaBelcher) is a cryptocurrency and civil liberties attorney. She is special counsel to the Electronic Frontier Foundation, general counsel and head of policy at Protocol Labs and president and chair of the Filecoin Foundation as well as the Filecoin Foundation for the Decentralized Web. Her views are her own. This article is part of CoinDesk's Privacy Week series.
Currently, the U.S. government collects information from cryptocurrency exchanges and other institutions that serve as the on-ramps and off-ramps where people buy, sell, exchange and store cryptocurrency. The updated law will impose reporting requirements on many other participants in the cryptocurrency ecosystem – from developers to traders to miners to end users. These participants will be required to collect sensitive identity details of counterparties, securely handle that sensitive information and turn it over to the government – or potentially face criminal penalties.
This law will greatly expand the government’s warrantless surveillance of sensitive financial information, including for transactions under $10,000 – despite the fact the law says it pertains only to transactions above that threshold. That’s because of the nature of public blockchains: If the government knows the identity associated with a cryptocurrency wallet, then it knows the identity behind all transactions for that wallet, even when those transactions are far below $10,000.
This law violates the Fourth Amendment of the U.S. Constitution. The Fourth Amendment requires law enforcement to get a warrant supported by probable cause before conducting a search or seizure. Yet, under the Bank Secrecy Act, the government engages in mass surveillance of bank customers without a warrant. The government does this under the auspices of the third-party doctrine, which is the idea that people do not have a reasonable expectation of privacy in the data they share with a third party like a bank. In conducting financial surveillance, the government relies on the U.S. Supreme Court’s 1976 decision in U.S. v. Miller that the Bank Secrecy Act (as it was implemented at the time) did not violate the Fourth Amendment because of the third-party doctrine.
The Supreme Court justice who authored Miller wrote in another case, Burrows v. Superior Court, that “financial transactions can reveal much about a person's activities, associations and beliefs” and “[a]t some point, governmental intrusion upon these areas would implicate legitimate expectations of privacy.” That was written in the 1970s.
Furthermore, the Miller case was an “as-applied” challenge to the Bank Secrecy Act – meaning that, in making its decision, the Supreme Court was narrowly considering only how the Bank Secrecy Act was implemented at that time, not whether the entire statute is unconstitutional in light of how it could be implemented. Since then, the government has greatly expanded its financial surveillance. And the updated section 6050i goes even beyond the U.S. government’s other warrantless financial surveillance.
In addition, since Miller, the Supreme Court has issued multiple strong pro-privacy decisions, chipping away at the third-party doctrine in the digital world. For example, the Supreme Court held in Carpenter v. U.S. that law enforcement must get a warrant to obtain cell phone location information, even when that information is held by third parties (i.e., cell phone companies).
There, the Supreme Court said that “[e]xpectations of privacy in this age of digital data do not fit neatly into existing precedents.” The Court noted that the digital records at issue in that case provided “an all-encompassing record of the holder’s whereabouts” and “an intimate window into a person’s life, revealing not only particular movements, but through them [their] familial, political, professional, religious and sexual associations.”
Similarly, the information that could be gleaned from bank data in the 1970s is a world away from the intimate window into a person’s life provided by financial data today. Digital financial transactions are deeply personal and revealing. Like the location records in Carpenter, financial records reveal familial, political, professional, religious and sexual associations, providing insight into the organizations you support, the people you send money to, the products and services you buy, the books you read. Indeed, today’s financial records often reveal your location, and location data is exactly what was at issue in Carpenter.
The Fourth Amendment balances the legitimate interests of law enforcement with the civil liberties of citizens by requiring the government to get a warrant before conducting searches. Requiring people to turn over information about financial transactions to the government by default, with no warrant or probable cause, is unconstitutional mass surveillance.
Financial privacy is not bad or illegal. To the contrary, it is essential for civil liberties. I often think of the striking photos of protesters from the Hong Kong protests waiting in long lines at subway stations.
In the pictures, protestors are waiting to purchase their tickets with cash so their electronic purchases don’t place them at the scene of the protest.
To me, these photos underscore the importance of financial privacy for civil liberties, and why, in the context of financial transactions, we must protect our Fourth Amendment rights.
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