Congress’s anti-money laundering bill (S. 1241): Coin Center is on it

The “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017,” also known as S. 1241, has been getting a fair amount of attention since we first wrote about it here this past summer, so we wanted to give you an update on our work on the bill over the past few months.

First, if you have not already, please read our initial analysis of the bill, which is still our current thinking. Essentially, this is a bill that was first introduced (and did not pass) in 2011. Since that time, FinCEN issued guidance in 2013 that accomplishes the policy goals of the bill’s section aimed at digital currency, thus making that section redundant given Treasury’s interpretation of existing law. If the bill were to pass today, however, it would sow a lot of uncertainty since it would likely supercede the FinCEN guidance and all the work on the part of industry and Treasury to build a reasonable AML regime for digital currency. This is especially true because many of the key terms in the bill are not defined.

Since the summer, we have been educating and lobbying staff for the bill’s sponsors, as well as other members on relevant committees of jurisdiction. We also briefed staff and witnesses ahead of a hearing on the bill two weeks ago. Our position has always been the same: that Section 13 of the bill, which deals with digital currency, should simply be removed because the policy it seeks to enact is already how FinCEN interprets the Bank Secrecy Act (BSA), and is thus already law. That said, after many meetings and conversations about the bill, we’ve learned that many in Congress would prefer that the AML/KYC obligations of digital currency exchangers be codified in law rather than simply exist in mere guidance.

We don’t think codification is necessary and have made the case, but to the extent that there is a strong desire to codify the obligations, we have advocated that the bill simply codify the existing FinCEN guidance so that there would be essentially no practical change in how exchangers or Treasury are operating. To get in the weeds a bit for those of you who care, we have suggested that rather than adding “digital currency” to paragraph 31 USC § 5312(a)(2)(K) as the bill would now do, that it instead be added to paragraph 31 USC § 5312(a)(2)(R). Rather than amending the definition of “financial institution” in the BSA, this would instead specify, as FinCEN has previously found, that digital currency exchange is money transmission under the BSA.

Finally, we have seen reports that S. 1241 would somehow criminalize the undisclosed possession of digital currency. This is not at all the case, and there is nothing in this bill that comes even close to that. Some of the confusion may stem from the fact that the bill would also direct Customs and Border Protection to “submit to Congress a report “detailing a strategy to interdict and detect prepaid access devices, digital currencies, or other similar instruments, at border crossings[.]” We’re not alarmed by this because, as we explained in our previous post:

The first thing to note is that the only thing this section mandates is that DHS and CBP submit a report to Congress. That is all. It does not create any obligations on anyone (except DHS and CBP) nor does it articulate any particular policy. Second, the report in question is meant to have DHS and CBP investigate and explain how they will be able to “detect and interdict prepaid devices, digital currencies or other similar instruments” at the border. Detecting and interdicting such instruments is the kind of thing Congress expects these agencies to be able to do and to be able to explain how they plan to do it, and mandating such a report does not say anything about policy.

Making sure Section 13 is removed from this bill, or that at least it is amended so that it doesn’t upend the existing reasonable interpretation of the BSA, is one of our top priorities at the moment and we’ll continue to work on it as we have over the past six months. A lot of the work we do is quiet education on Capitol Hill, and often it’s reiterating the same point again and again, so we won’t often post about the work we’re doing, but please know that we’re on it.