Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

January takes its name from Janus, the god of transitions and the guardian or the gates of Rome, looking always forward and backwards.

So while this has been going on for over two millennia, only a week into 2021 I am thoroughly tired of retrospectives and prognostications. My personal takeaways from 2020 were pretty existential: we are but sentient dust; life comes at you fast; man plans and God laughs etc. But while I grew more suspicious of the institution of prediction, I got a lot more diligent about flossing, so at least one resolution panned out. 

The past several weeks have been rich enough in crypto policy news that I don’t feel much need to go into abstractions about the future, but that doesn’t mean I will totally refrain from making reckless predictions. A lot of what we’ve seen recently in U.S. policy has had to do with the coming transition from one administration to the next, which will dominate the next twelve days.

While a number of government agencies run by presidential appointees have hustled to get final rules out before getting swept away by Biden’s replacements, the storm of the Capitol Building Wednesday evening was enough of a shock and an outrage as to cause everything else to come to a screeching halt. It also seems to have washed away the last meaningful support the outgoing president had at the federal level. In the U.S. at least, it looks like the next two weeks are going to be all about containing Trump.

FinCEN’s comment period ends

The already-infamous wallet monitoring rules proposed by the Treasury’s Financial Crimes Enforcement Network, or FinCEN, have closed out their comment period.

Despite FinCEN announcing the rules immediately before the holidays with a comment period of only 15 days, the proposal received thousands of comments. The crypto industry turned out, unanimously condemning the push to heighten reporting requirements for crypto exchanges transacting with self-hosted wallets.

Objections fell along a spectrum of concern over privacy, surveillance, lack of parity with cash, and the Treasury’s questionable ability to secure its own data. A decent chunk of the crypto community finds the idea of the government knowing anything about financial transactions offensive and would likely support the wholesale repeal of the Bank Secrecy Act — another prediction: that’s not going to happen.

Others simply don’t like the misbalance with cash. The new proposal would apply a $3,000 threshold to crypto, which is the benchmark for international transfer reporting requirements, rather than for a bank handling cash for a client, in which case the threshold is $10,000. The logic seems to be that it’s impossible to know whether a self-hosted wallet is based in the U.S. or abroad, so the Treasury wants that information if it passes the lower threshold. This week, FinCEN also asked to make foreign crypto accounts part of reporting requirements under the Bank Secrecy Act.

Given the flood of thousands of comments, it seems unfathomable that the Treasury will succeed in getting these rules through before Mnuchin leaves with the Trump administration. Any resulting rules are likely to face challenges in courts on procedural grounds.

Twilight of the Acting Comptroller

The Treasury’s Office of the Comptroller of the Currency has, in contrast with FinCEN, been a darling of the crypto community since former Coinbase legal chief Brian Brooks took over as Acting Comptroller in May.

On Monday, the OCC put out a groundbreaking interpretive letter authorizing national banks to run nodes for distributed ledgers and use stablecoins to make payments. The decision is obviously a big deal for integrating crypto into the goliaths of traditional financial infrastructure, but it remains to be seen how many national banks take up the challenge of actually doing it.

Despite how popular such decisions are among the crypto world, Brooks has rubbed some folks the wrong way. State regulators have especially taken issue with his expansion of federal banking authority. On Tuesday, the Attorneys General of eight states and the District of Columbia filed suit against Brooks and the OCC over its recently enacted “True Lending Rule.” The rule puts loans involving a nationally chartered lending institution under the OCC’s authority, subjecting it to the OCC’s limits on interest rates.

States say the new rule threatens the sovereignty of state anti-usury laws. The OCC, however, argues that the program is a means of expanding credit availability. But it’s unlikely that Brooks will be around the OCC for much of the case. His nomination by Trump has yet to result in a confirmation hearing before the Senate, which is unlikely to prioritize such a confirmation between now and Biden’s ascension on the 20th.

Protectionism in payments

Despite what I wrote above about predictions, ‘tis the season. Here’s one: national protectionism in payments is going to grow into a more central national priority. Crypto will get swept up into this, especially given the push for central bank digital currencies and the rise in crypto analytics firms.

As an example, the trade war between China and the U.S. has been heavily focused on technology. Cointelegraph has written extensively on the role of CBDCs in the competition between the two countries, with China’s digital yuan presenting the most realistic threat to the geopolitical dominance of the U.S. dollar since the Second World War.

Just this week, President Trump sent out an executive order blocking a roster of Chinese payment apps from operating in the states. It doesn’t come into effect during Trump’s administration, meaning it’s unlikely to come into effect at all, but it’s a gesture. Biden is unlikely to be as publicly bellicose in his dealings with China as Trump has been, but the threat China poses to the U.S. is not fundamentally a partisan one.

In its ideal form, the internet makes information borderless. Similarly, the Platonic notion of crypto renders payments entirely free. But just as information remains siloed, payments have some liberating yet to do. With governments globally tuning in to their own payments systems, onboarding stablecoins and analytics, expect major economic powers to get territorial.

Further reads

AEI’s Jim Harper summarizes the inconsistencies between FinCEN’s rule and standing BSA requirements on cash transactions.

Lawyers for Ballard Spahr dig into the OCC’s new rule on banks operating stablecoin networks.

The Electronic Frontier Foundation applauds the UK’s rejection of the U.S. DoJ’s request to extradite Wikileaks founder Julian Assange.

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