US Wants to Expand “Warrantless” Open-source Software Monitoring

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  • Crypto advocacy group Coin Center has criticized the US Department of the Treasury’s plans to increase surveillance of crypto entities
  • Coin Center called the plans “warrantless surveillance” that would  breach privacy rights
  • The Treasury wants to increase crypto surveillance to reduce crypto funding of terrorist groups

US authorities want to embark on a “massive expansion of warrantless surveillance and power to sanction open-source software,” according to crypto advocacy group Coin Center. The group made the claim in a blog post following a memo sent to the heads of the Senate Banking and House Financial Services Committees by the US Department of the Treasury in which proposals of how to deal with suspected funding of terrorist groups through cryptocurrency were discussed. Coin Center said that while it understood the need to prevent such activities, the scale was overblown, and any such measures needed to be “constitutional and respectful of our civil liberties.”

Treasury Wants to Use Hamas Activities as Platform

The Department of the Treasury’s memo, titled “Potential Options to Strengthen Counter-Terrorist Financing Authorities,” was sent following a briefing on how Hamas and other terrorist groups were financing their operations, with cryptocurrencies mentioned as one of the mediums used to raise funds. Hamas’ use of crypto was one of the reasons cited for Binance’s blockbuster $4.3 billion fine last week, which the exchange allegedly facilitated.

The Treasury proposes the creation of an authority akin to secondary sanctions, potentially resembling existing special measures, ranging from information requirements to complete prohibitions for US financial institutions in cryptocurrency transactions. The recommendations suggest closing “loopholes” by defining virtual asset wallet providers, blockchain validator nodes, and decentralized finance services as financial institutions under the Bank Secrecy Act.

This broadened definition includes DeFi service providers, noncustodial wallet providers, miners, and validators, subjecting them to the same regulations as traditional financial institutions.

Three Key Areas of Concern

Coin Center’s reply focused on three key arguments:

No Loopholes in Treasury Authorities: There are no existing loopholes in Treasury authorities as the Bank Secrecy Act (BSA) already grants the Treasury extensive discretion to monitor financial transactions, potentially reaching beyond current limits.

Challenges with Treating Publishers as Financial Institutions: Coin Center has concerns about categorizing entities such as non-custodial wallet providers, “DeFi service providers,” miners, and validators as financial institutions. They placed emphasis on the fact that many of these entities are essentially publishers of software or data without being in a trusted or agency-like relationship with users.

Expanding Powers under the International Emergency Economic Powers Act (IEEPA): The recommendations include subjecting “blockchain nodes or other elements of cryptocurrency transactions” to the International Emergency Economic Powers Act (IEEPA). Coin Center argues that this could have a negative impact on software and free speech, emphasizing the technological infeasibility and constitutional concerns associated with sanctioning particular blockchain nodes or networks.

Uphill Battle for Coin Center

Coin Center could have an uphill battle on its hands when it comes to First and Fourth Amendment rights, however, having recently lost a court case against the Treasury over its sanctioning of crypto mixing service Tornado Cash.

The group filed the lawsuit in October last year claiming that the Treasury’s actions infringed on American citizens’ First Amendment rights, but the judge ruled in favor of the Treasury, finding that the designation of Tornado Cash as a sanctioned entity “did not implicate Plaintiffs’ First Amendment rights.”