The U.S. Treasury Department proposed sweeping new rules late Friday (Dec. 18) that the government says would make convertible digital currencies like bitcoin less attractive to criminals engaging in crimes such as ransomware attacks.
The new regulations, if adopted after a comment period, would require banks and some other institutions to obtain and report the identities of parties engaging in certain digital transactions, including payments involving what are called “unhosted wallets” – effectively secret bank accounts that hold cryptocurrency. The rules effectively require financial institutions to report such digital transactions in much the same way they have been required to report cash transactions since 1970.
The proposed limits for reporting digital transactions are $10,000 for non-wire transactions and $3,000 for wire transactions – the same as with cash.
The rationale for the new regulations, as the government laid out in the Federal Register, is that “U.S. authorities have found that malign actors are increasingly using CVC to facilitate international terrorist financing, weapons proliferation, sanctions evasion and transnational money laundering, as well as to buy and sell controlled substances, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals. In addition, ransomware attacks and associated demands for payment, which are almost exclusively denominated in CVC, are increasing in severity.”
“CVC” stands for “convertible virtual currency” – a category of digital products that can serve as currency. Bitcoin is a popular example.
U.S. Treasury Secretary Steven Mnuchin said in a prepared statement that the new proposed rule “addresses substantial national security concerns in the CVC market and aims to close the gaps that malign actors seek to exploit in the record-keeping and reporting regime. The rule, which applies to financial institutions and is consistent with existing requirements, is intended to protect national security, assist law enforcement and increase transparency while minimizing the impact on responsible innovation.”
Among the information the government has indicated it wants banks to collect and provide for certain transactions are the name and address of the financial institution’s customer; the type of CVC or LTDA used in the transaction; the amount of CVC or LTDA in the transaction; the time of the transaction; the assessed value of the transaction, in U.S. dollars, based on the prevailing exchange rate at the time of the transaction; any payment instructions received from the financial institution’s customer; and the name and physical address of each counter-party to the transaction of the financial institution’s customer.
Another provision of the measure would let the secretary of the Treasury add additional requirements.
The publication of the proposed new rules in the Federal Register triggers a comment period before which a new regulation can become official. The comment period ends Jan. 4, according to the official Federal Register posting.
The Treasury Department published a list of questions and answers related to the proposal, arguing among other things that they would not stifle innovation or impose unreasonable burdens on people who aren’t breaking laws.