Coinbase’s response to recent proposed rulemaking from the U.S. Treasury and FinCEN
This letter was shared with Kenneth Blanco, Director, FinCEN on Dec. 21st, 2020
Kenneth A. Blanco
Director, Financial Crimes Enforcement Network
United States Department of the Treasury
P.O. Box 39
Vienna, VA 22183
Via email to kenneth.blanco2@fincen.gov
Re: Docket No. FINCEN-2020–0020; RIN №1506-AB47
Dear Director Blanco:
Late Friday afternoon, the Financial Crimes Enforcement Network released a 72-page notice of proposed rulemaking, “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets,” that would impose new and onerous reporting and recordkeeping requirements for cryptocurrency transactions. FinCEN asked the public to provide comments in just 15 days, spanning Christmas Eve, Christmas Day, New Year’s Eve, and New Year’s Day, in the middle of a global pandemic — leaving just a handful of actual working days for comments. Because we have historically enjoyed and valued a productive working relationship with FinCEN, this recent development is an unfortunate and disappointing departure. Put another way, this latest NPRM is not how effective regulation is made. We therefore ask that FinCEN reconsider its haste and provide the typical 60-day period for such significant proposed rulemaking.
As a leader in the cryptocurrency industry, Coinbase routinely provides input and formal comments as agencies consider and develop new regulations. We are proud of our record in working with governments around the world to develop productive regulation, and we take seriously our obligation to do so on behalf of our industry and all users of cryptocurrency. But we have never seen such a rushed effort for such a significant proposed change in our industry.
In the notice, FinCEN asks for comments on 24 separate questions (more than three pages of the notice alone). Based on our initial review over the weekend, responding to those issues will require Coinbase and many other companies to undertake detailed technical analyses, extensive costs assessments, and complex balancing of privacy interests for the customers whose personal information would now be required to be turned over automatically to a government agency. As just one example, FinCEN asks for estimates of not just the costs of complying with the proposed record keeping and reporting requirements, but also estimates if reporting thresholds changed, coverage expanded to include all crypto transactions, and additional identity verification was mandated. FinCEN makes no attempt of its own to estimate the cost of the proposed rules, leaving that work entirely to the industry in this abbreviated comment period. Coinbase is equally concerned about the issues not included in the three pages of questions. For example, the cryptocurrency industry is built on technology with critical and meaningful distinctions from traditional finance, but the notice does not adequately account for those relevant differences when proposing these new requirements. Addressing all of the questions FinCEN has posed and the additional issues FinCEN has not yet considered would take much longer than 15 days in the best of times. To do so in a handful of working days across the national holidays and during the latest surge in COVID is quite obviously impossible. And that impossibility will materially hinder FinCEN’s ability to craft regulation that considers and addresses the concerns of the community it is regulating, as it is required to do.
Despite the justifications provided in the notice, there is no basis in the law to take away the public’s “opportunity to develop evidence in the record to support their objections to the rule….” Capital Area Immigrants’ Rights Coal. v. Trump, 471 F. Supp. 3d 25, 44 (D.D.C. 2020). It is not enough to cite generically to “significant national security imperatives” and a handful of examples of wrongdoing related to cryptocurrency around the globe untied to the proposed rules themselves and many of which are more than a year old. See Notice at 2–3. The APA’s “good cause” exception requires an agency to provide a specific, factual justification for claiming an emergency. Tennessee Gas Pipeline Co. v. F.E.R.C., 969 F.2d 1141, 1146 (D.C. Cir. 1992). But FinCEN’s notice here says this issue has been under consideration since at least 2019, if not earlier, without any explanation of how an emergency has suddenly arisen years later, and coincidentally just as the current administration is set to leave office. See Notice at 3. The “foreign affairs function” exception in the APA provides even less of an escape hatch from a notice and comment period here, as that exception relates narrowly to “activities or actions characteristic to the conduct of international relations.” Capital Area Immigrants’ Rights Coalition v. Trump, 471 F. Supp. 3d 25, 53, 57 (D.D.C. 2020).
For “significant regulatory actions” — and this proposed rule is one — “agencies should use a comment period of at least 60 days.” Administrative Conference of the United States, Rulemaking Comments, Recommendation number 2011–2 (June 16, 2011). That is precisely what FinCEN has done for the traditional financial industry. For example, FinCEN’s Customer Due Diligence Requirements for Financial Institutions provided the traditional 60 days for notice and comment. 79 Fed. Reg. 45,151 (Aug. 4, 2014). In fact, FinCEN justified the proposed customer due-diligence requirement using the same rationale set forth in this proposed rule: addressing “national security interests”; preventing money-laundering; and assisting law enforcement. Id. Yet FinCEN offered a notice-and-comment period that was four times longer than what is proposed here — and did so after also holding five public hearings where the regulated community could express views on the proposed rulemaking itself. Id.
There is no emergency here; there is only an outgoing administration attempting to bypass the required consultation with the public to finalize a rushed rule before their time in office is done. There is also no justification for treating the cryptocurrency industry so differently from our counterparts in traditional finance. FinCEN has previously expressed a willingness to extend a 30-day deadline for comments to 60 days for a proposed BSA rule “in order to allow interested parties more time in which to comment on the proposals in the [Prepaid Access notice of proposed rulemaking].” 75 Fed. Reg. 41,789 (July 19, 2010). The same rationale applies even more so in the midst of a global pandemic.
Coinbase requests that FinCEN apply the traditional 60-day notice-and-comment period to this notice, at a minimum, to ensure that Coinbase and other industry stakeholders have a true opportunity to engage in the review and comment process with respect to the proposed rule as the law requires.
Sincerely,
Paul Grewal
Chief Legal Officer
Coinbase
Coinbase’s response to recent proposed rulemaking from the U.S. Treasury and FinCEN was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
OhNoCoinbase via https://www.ohnocrypto.com/ @Coinbase, @Khareem Sudlow