The Breakdown - A Crypto Industry Poison Pill Hidden in the America COMPETES Act?

Starting point is 00:00:00 This is one of if not the defining political power struggle right now. How much freedom are we willing to give up for safety? The most frustrating piece to many is that some of these sections, including this change to the BSA, was something that was tried to be shoved in a previous bill and was rejected previously. This isn't even an update. It's just another attempt to get it in. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Abra, and FTX, and produced and distributed by CoinDesk.

Starting point is 00:00:38 What's going on, guys? It is Thursday, January 27th, and today we are talking about the poison pill hidden in the America Competes Act. Before that, however, if you are enjoying the breakdown, please go subscribe to it, rate it, give it a review, or if you want to get deeper into conversation with the community of listeners, join the Breakers Discord. You can find the link in the show notes or at bit.ly slash breakdown pod. And as always, a disclosure, in addition to them being a sponsor, I also work with FTX. Now, there were lots of requests for this particular topic after Jerry Brito from Coin Center sounded the alarm yesterday. So let's dive in a little bit and see if we can't figure out what's going on. The controversy centers around the America Competes Act. and now theoretically, this is a bill about competitiveness with China.

Starting point is 00:01:34 It's supposed to be focused on addressing supply chain issues on keeping U.S. manufacturing and technology industries competitive relative to the rest of the world. Here's President Biden's statement on the bill. The House took an important step forward today in advancing legislation that will make our supply chain stronger and reinvigorate the innovation engine of our economy to out-compete China and the rest of the world for decades to come.

Starting point is 00:01:58 The proposals laid out by the House and State. Senate represent the sort of transformational investments in our industrial base and research and development that helped power the United States to lead the global economy in the 20th century and expand opportunity for middle-class families. They'll help bring manufacturing jobs back to the United States, and they're squarely focused on easing the sort of supply chain bottlenecks like semiconductors that have led to higher prices for the middle class. Building on the historic investments in the bipartisan infrastructure bill that I signed last year and on signs of progress like last week's Intel announcement and today's GM announcement, comprehensive competitiveness legislation will power

Starting point is 00:02:34 our economy to create good paying jobs for all Americans, no matter where you live or whether you have a college degree, and will help tackle the climate crisis. So, that's the vision of what this is supposed to be. But unfortunately, like most American bills these days, it is sprawling. We're talking 2,912 pages sprawling. The Libertarian publication Reason took this to task, saying, to tackle Chinese fentanyl production, e-commerce platform liability, misinformation in foreign media, global wildlife trafficking, legal conventions in Pacific Island nations, Arctic mammal rescue capabilities, coral research, and the origins of the COVID-19 virus. It bans shark fin sales, drift net fishing in the U.S. exclusive economic zone, and the transportation of certain wildlife

Starting point is 00:03:20 across state lines. It offers money for establishing a fund for Chinese language studies, climate change initiatives, solar power, spreading U.S. propaganda overseas, and promoting the consumption of certain types of seafood. Their point, of course, is that it's not clear to them, or perhaps to the casual reader, what this has to do with supply chain security. But that ultimately is not the crypto industry's concern. So for that, let's go to this thread from Jerry Brito, the executive director over at Coin Center. He tweeted yesterday, important, all caps. Included in the America Competes Act just introduced in the house, and which will very likely pass in some form, is a provision that would be disastrous not just for cryptocurrency, but for privacy and due process

Starting point is 00:04:04 generally. The so-called special measures provision, proposed by Congressman Jim Himes, would essentially give the Treasury Secretary unchecked and unilateral power to ban exchanges and other financial institutions from engaging in cryptocurrency transactions. How would it do this? Bank Secrecy Act 5318A allows the Secretary to identify a, quote, primary money laundering concern and take, quote, special measures to, one, require financial institutions to report information on the concern, and or two, prohibit financial institutions from maintaining accounts related to the concern. Special measures authority is vast power that the Secretary of the Treasury has today, so in the current statute there are checks on that power.

Starting point is 00:04:47 First, the law requires that Treasury engage in a public rulemaking before instituting a prohibition. Second, the Secretary can impose a surveillance special measure through a simple order, but its duration is limited to 120 days and must be accompanied by a public rulemaking. While not full due process, these limitations at least alert the public and gives the public some opportunity to comment on a special measure's merit or constitutionality. The new provision would do three things. One, add, quote, certain transmittal of funds to the list of things that can be banned by the secretary. two, eliminate all public notice and comment requirements.

Starting point is 00:05:23 Three, eliminate the 120-day limitation for measures imposed without regulation. If adopted into law, this provision would be disaster, not just for crypto, but for privacy and democratic public process related to all types of financial transactions. It empowers the Secretary to prohibit any or indeed all cryptocurrency transactions or any other kind of transaction without any process, rulemaking, or limitation on the duration of the prohibition. This provision was first introduced as an amendment to the National Defense Authorization Act last year by Representative Jim Himes. After alerting folks in the House and Senate of the amendment's unintended consequences, it was removed from that final bill that passed.

Starting point is 00:06:02 Unfortunately, it's back verbatim without any improvements. It strips out all administrative process and duration limitations on the Secretary's power to condition or prohibit transactions at financial institutions associated with primary money laundering concerns. It's time to call your members of Congress and ask that they take action to make sure that notice and comment and duration limits are not removed from the Bank Secrecy Act as the America Competes Act would do. Nexto is a trusted and easy-to-use crypto platform where you can buy cryptocurrencies at the touch of a button and start earning up to 17% annual interest that is paid out daily. They support all of the major assets on the market and even allow you to swap one asset for another or borrow cash against your crypto without selling it. Nearly 3 million people in over 200 countries trust Nexo with their digital assets. So whether you're just getting started or you're a season pro, get the most of your crypto today with Nexo at nexo. Today's episode is sponsored by Abra.

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Starting point is 00:07:51 FtX US is also the only leading exchange that supports both. both Ethereum and Solana NFTs. You can trade NFTs with no gas on FTX US, and gas is subsidized when you withdraw off the platform. Help support the breakdown and visit FTX.us today. That's FTX.U.S. Fight for the future another digital rights advocacy organization puts it in slightly more personal terms that expand it from just cryptocurrency. They wrote an immediate press release saying, whether you're an activist accepting donations from neighbors, sending remand, is abroad, donating to help in humanitarian disasters, a blockchain developer, this provision appears to allow Treasury to end your access to financial services forever. Further, this provision

Starting point is 00:08:41 would set Treasury up to immediately and permanently ban all financial institutions from touching cryptocurrencies, an entire class of technology, or any future technology for transmittal of funds that it deems concerning. It appears to also allow Treasury to ban financial institutions like Venmo, banks, Western Union, cryptocurrencies, payment processors, and more from serving a whole class of people like sex workers. Regardless of what you think about cryptocurrencies, this legislation will have a broad and deeply chilling effect on activists, immigrant communities, and other marginalized people. Congress must stop shoehorning important provisions into fast-track legislation. We need careful and considered policies to protect people and address

Starting point is 00:09:20 real problems like money laundering without undermining our freedoms and rights. This financial censorship provision in the Compeats Act has already been dropped from legislation once, and we have heard that there is a chance it might be pulled again. So just to be super clear here, this is not a specific policy per se that people are concerned about. It's more about a process, a due process, a check on power that is threatened. Jerry Brito again reinforces this saying because Treasury is required under current law to notify the public and seek public input whenever it takes special measures, we have a nice list of how it's employing this power. important way for the public to check its government. If the provision included by Representative Jim

Starting point is 00:10:02 Heim's and the America Competes Act becomes law, Treasury will no longer have to publish any such list. It would not have to notify the public or seek public comment. It will be able to take special measures in secret. Going just a little deeper on the special measures part of the Bank Secrecy Act, because that's the key thing in question here. The Bank Secrecy Act has five special measures. The first four give the Secretary of the Treasury power to make all financial institutions engage in extraordinary surveillance. So imagine, for example, all details of your transactions go to an investigation file automatically. The fifth allows them to direct financial institutions to prohibit customers from transacting at all. They can put these into place effectively whenever they have money laundering suspicion. When, quote, reasonable grounds exist for concluding that a jurisdiction

Starting point is 00:10:49 outside the United States, one or more financial institutions operating outside of the United States, one or more classes of transactions within or involving a jurisdiction outside of the United States, or one or more types of accounts is of primary money laundering concern. You might be saying to yourself, that's already a boatload of power, so what exactly is changing? Well, in current form, the Secretary is required to give public notice and the opportunity for public comment. It's also limited in how long it can prohibit and monitor transactions for. If this new measure were passed, that would all be gone. It also expands the list of special measures to include prohibiting any transaction that is deemed a, quote, transmittal of funds.

Starting point is 00:11:29 Now, laws get made all of the time, and a lot of times before they're finalized, they have things in them that are politically unpalatable that get beaten back. This provision has in fact been beaten back once before on another must-pass legislation when it was snuck in. So the question is, is this one of those times where this is likely to be removed? On the one hand, Jake Chavinsky, who's the head of policy at the Blockchain Association, tweeted right away after Jerry's post, Jerry is not an alarmist by nature, quite the opposite. When he uses double sirens in all caps, you know it's time to pay attention. Read this and stay tuned.

Starting point is 00:12:05 However, by the end of the day, Jake had another tweet where he said it was a busy but productive day. After a few good conversations, I'm optimistic that today's legislative situation will end up fine. Don't lose any sleep over it tonight. Kristen Smith, who's the executive director at the Blockchain Association, agreed, saying this is not another infrastructure situation. We're having a constructive dialogue with decision makers who are open to input. More work to do, but way better than the situation in August. So of course, what they're referring to is last summer's infrastructure bill fight, where at the last minute a pay-for provision was snuck in, which could impose rules on many parts of the crypto industry, such as miners and

Starting point is 00:12:43 developers, that simply aren't possible to comply with. In other words, forcing the actors in a non-custodial ecosystem to capture information that they can't possibly have access to, making their activities a priori illegal. That caused an incredible battle. I had many podcasts about it. It was a seminal moment for the crypto industry and the crypto political body in particular. This, the blockchain association, one of the organizations most involved with that fight, said, is different. Now, that said, there's definitely a lot of agreement that this is not something that should pass. Michael Moseyre, the acting director of FinCEN, the Financial Crimes Enforcement Network from April to August of last year, said, Notice in common is critical for both democratic and practical reasons.

Starting point is 00:13:25 Unintended consequences more likely prevented when the public can comment, especially with complex innovation and interconnected financial systems. Also may feel efficient in power, but will you want the next administration unchecked? He's bringing up the classic example that an administration in the U.S. has to consider where, when they expand power, for themselves, they're also expanding powers for the next guy, which may not be on their same team. Now, it's not just crypto who's mad about this bill, by the way. Some of the other provisions target platforms that don't catch counterfeit goods. Joshua LaMelle from Insight Public Affairs says, I cannot wait to see how Etsy creators and customers react to the provision in the America Competes Act as introduced today. They get screwed over big time to protect,

Starting point is 00:14:09 checks notes, French and Italian luxury goods companies? Huh? The adjuncts. rights itself for right-wing groups. Why are Nancy Pelosi and House Democrats giving special protections to Louis Vuitton and Gucci to the detriment of thousands of American small businesses? It's too easy. Ex-Biz, an adult industry news site, said, the Shop Safe section, previously a separate bill, would create a souped-up version of DMCA protections for intellectual property and trademarks. A legal expert familiar with the discussions leading to the bill told ex-biz, quote, this means that larger online marketplaces will likely opt to kick off niche or smaller third-party sellers because they create risk. TechDirt writer Michael Maznick sums up what I think a lot of people felt reading this.

Starting point is 00:14:51 Just going to come out and say it. When you release a bill that is 2,912 pages long, and you then need to release a summary of the bill that is 109 pages long, which then requires a 20-page fact sheet, your bill is too long and filled with questionable nonsense. And here's the thing. I actually strongly support the underlying goals of the Competes Act, but when you fill the entire bill with terrible, terrible ideas, you destroy it as a viable bill. I get that this is how politics work, but it's dreadful and dangerous policy.

Starting point is 00:15:21 So, let's sum up. The bad. This bill features a number of provisions and sections that quite significantly reduce due process around financial freedoms, and they do so in the name of fighting crime. This is one of, if not, the defining political power struggle right now. How much freedom are we willing to give up for safety? The most frustrating piece to many is that some of these sections, including this change to the BSA,

Starting point is 00:15:44 was something that was tried to be shoved in a previous bill and was rejected previously. This isn't even an update. It's just another attempt to get it in. Which means, in other words, that these battles are likely to be fought over and over again till the end of time. What about the good? There are two layers of good, I think, here. When it comes to this specific bill, there is already so much that people from numerous industries are in arms about. The Democrats aren't really politically powerful enough to just shove it through, so it seems likely to me to go through a lot of changes before a final bill is voted on. Second layer of good, when it comes to crypto specifically, the crypto political lobby is way

Starting point is 00:16:20 on top of this. The experience of the infrastructure bill fight last summer has definitely made this industry much more attuned to these sort of last-minute hiding and provision techniques, which in turn makes those tactics much less likely to succeed. Whatever the case, there is never all day in this industry. So I hope that this helped you understand the situation a little bit more and have a bit better a grasp on what might come next. But for now, I want to say thanks again to my sponsors, nexo.io, Abra and FTX for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - A Crypto Industry Poison Pill Hidden in the America COMPETES Act?

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