The Digital Asset Anti-Money Laundering Act: An unconstitutional bill for an unconstitutional world

This editorial is by L0la L33tz. She is a privacy and security researcher, hacking advocate, and security advocate. The Digital Asset Anti-Money Laundering Act Of 2022, which was proposed by Senator Elizabeth Warren, contains the following regulations:Section 3: Part a: The classifications of custodial and “unhosted” wallet providers. This would include developers of non-custodial digital wallets as money transmitters. They would need to obtain a license. Problem is that “unhosted wallet provider” does not exist. “Unhosted wallets” or non-custodial ones are just software. Infringing on The First AmendmentThe enactment section three, part A would require anyone who writes software that allows the sending, receipt, and signing of bitcoin transactions to apply for a money transmitter licence. This attempt to restrict the writing of code is not new. It is also directly unconstitutional. The U.S. constitution clearly states, “Congress shall not make any law.” . . denying freedom of speech.” These circumstances have resulted in numerous U.S. courts rescinding attempts to regulate the writing of software. In Universal City Studios vs. Corley, 2001, for instance, the second circuit addressed the attempted restriction on computer code with the following arguments:Communication does not lose constitutional protection as “speech” simply because it is expressed in the language of computer code. If someone decided to write a novel entirely using computer object code, using strings of one and zeroes for each letter in each word, it would still be constitutionally protected. A recipe is not less speech simply because it requires the use of an oven. A musical score is not less speech because it specifies how to play an electric guitar. A program can direct the functioning of a computer, but that does not mean it cannot convey information. This would hinder discourse among computer scholars just as it would limit protection for musicians to descriptions and not sequences or notes. The Key to Moving the House Even so, the section seems too broad to be legal without directly violating constitutional rights. This is especially true since developers of non-custodial money wallets do not transmit money. Non-custodial wallets can transmit bitcoin the currency just as easily as the key to a door moves the house. Non-custodial wallets act as signing devices that transfer access rights to bitcoin, but the asset itself is not affected. A regulation of public-private cryptography would be made to restrict the development of non custodial wallets. This regulation has already been attempted and rejected due to violations of the U.S. Constitution’s first amendment. It is also absurd to consider developers of non-custodial bitcoin wallets money transmitters. This would be because they could act to validate or secure third party transactions. Bitcoin nodes instead validate one’s version of the blockchain against copies from other nodes in a network. Nodes do not transmit or secure third-party transactions. If a Bitcoin node is down, no other user’s funds will be affected. As such, the attempt to declare Bitcoin node operators money transmitters can be seen as an attempt to regulate who is allowed to compare information. The proposed bill fails to prove that section 3 is sufficiently narrow in scope to warrant approval without infringing upon other aspects of freedom of speech and information. Section three attempts to regulate bitcoin miners who are money service businesses. The bill also shows a shocking lack of understanding of the technology it attempts to restrict. A bitcoin miner is a computer that processes code as speech. A bitcoin miner does not transmit bitcoin from one place to another. Instead, a bitcoin miner transmits blocks of information to the network. From a technological perspective, a regulation of bitcoin miners is not valid. Section three fails to show that permissioned bitcoin mining would not be a violation of anyone using a computer to access or broadcast speech as protected by the U.S. constitution. Infringing on Well-Established Human Rights. The Digital Assets Anti-Money Laundering Act attempts to limit the handling, use, or transacting of business using digital assets that have been anonymized under section three, part d. This further violates aspects of the Fair Credit Reporting Act, California Privacy Act, the U.S. constitution’s Privileges & Immunities Clause, and Article 12 and 13 parts a, b of the Universal Declaration of Human Rights. The FCRA of 1970, a U.S. federal law, regulates the accuracy and fairness of consumer information as it is handled by credit reporting agencies. Credit reporting agencies are required by the act to remove negative information within seven years of the date of their first delinquency. This exception is made for bankruptcies (10 year) and tax liens (7 years from the time they were paid). Bitcoin transactions can keep an immutable record of their own transactions. Privacy services and tools that are restricted under the Digital Asset Anti-Money Laundering Act, which are services “designed to conceal, obfuscate, or obfuscate, the origin, destination and counterparties of digital assets transactions”, directly violate FCRA regulations. Credit reporting agencies would be able to keep indefinite records of any user’s financial information and transactions without the ability to delete them. The Gramm-Leach-Bliley Act, a U.S. Constitutional Act, governs the regulation of banks, insurance companies, and securities companies. The Gramm-Leach-Bliley Act requires companies to provide privacy notices to consumers at the time they establish consumer relationships. These privacy notices must document the extent of financial information being used. The FCRA requires that users have the right to opt-out of the sharing information. This is because financial information about bitcoin transactions is available to everyone who can view it by default. Gramm-Leach-Bliley Act is directly violated by the restriction of privacy tools. The California Privacy Act, a state-level privacy law, governs how consumer information is handled. It is often viewed as a stricter implementation of Gramm-Leach-Bliley Act. This act stipulates that financial information must be kept within one financial entity and that access to financial entities based upon affiliation is restricted. Any financial business that conducts bitcoin transactions for customers will unavoidably share customer’s financial information with any other financial entity — namely anyone who can view a blockexplorer — because the blockchain is a public ledger. The California Privacy Act’s relevant sections directly prohibit the use of privacy technology such as CoinJoin or blinded ecash for businesses. The Digital Asset Anti-Money Laundering Act also violates the California Privacy Right Act of 2020. This law requires that businesses obtain permission from a parent or guardian before collecting data on children under 16. This regulation is unenforceable due to the restriction of privacy tools. Because the age of Bitcoin users cannot be clearly distinguished in bulk collection of chain analysis data, it is impossible to distinguish the two. The U.S. Constitution includes the Privileges and Immunity Clause, which governs freedom of movement. The court in Paul v. Virginia ruled that U.S. citizens must have the “right to free ingress into other States, as well as egress from them,” which led to the creation this clause. The Digital Asset Anti-Money Laundering Act restricts the obfuscation regarding the origin of funds as well as the restrictions regarding the obfuscation senders and recipients. This law directly opens individuals up for arbitrary restrictions on freedom of movement as no one is allowed to cross state lines without purchasing the necessary means such as train tickets or gas. Protests in Hong Kong have shown the impact of fully surveillance on individuals’ freedom to move. During these protests, protestors were identified by the places and times at which their train tickets were purchased using digital means of payment. It can also be argued that the Digital Assets Anti-Money Laundering Act is incompatible with articles 18, 19, and 22 of 1966 International Covenant on Civil and Political Rights. These articles govern individuals’ freedom to move. In Hong Kong, protestors were identified by the times and places where they purchased their train tickets using digital means of payment. Article 12 states that no one should be subject to arbitrary interference with privacy. Section 3 of the Digital Asset Anti-Money Laundering Act proposes to allow total surveillance of anyone who uses bitcoin as a currency, under the pretext of anti-money laundering regulations. The Chainalysis crypto crime report for 2021 found that cryptocurrency-related illicit activity has reached an all time low and volumes have reached all-time highs. This clearly renders the proposed prohibitions on privacy technologies in cryptocurrency as arbitrary and a clear violation to Article 12. It also violates the Right to Financial Privacy Act, a federal law that requires governments to obtain consent from customers to access financial information. Another regulation that would be virtually impossible to enforce with the restriction on privacy tools and services and the enabling bulk surveillance of Bitcoin users. The Patriot Act of 2001 amended the RFPA to require the disclosure of requested information to intelligence agencies and counterintelligence agencies in any investigation related to terrorism. However, bulk surveillance of all cryptocurrency users cannot be justified under the Patriot Act due to a $15.8 trillion market cap and associated illicit transaction volume. The non-profit research and advocacy centre Coincenter has pointed out that the Digital Asset Anti-Money Laundering Act may also be in violation the fourth amendment of US constitution. It orders warrantless surveillance of all cryptocurrency users through developers and miners, while serving no purpose towards their operations. She would be wise to refrain from trying to violate the constitutional rights of her constituents and instead focus her efforts on protecting them. This guest post is by L0la L33tz. These opinions are not necessarily those of Bitcoin Magazine or BTC Inc.

 

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