When Congress is back in session this week, it will have to catch up on some of the pressing matters that were in the news over its summer break. One was digital currency, which with its large cast of hucksters and visionaries seems to provide no end of entertainment.
Facing Congress will be the
It is laudable and important to make the financial system safer, especially digital assets. But this bill violates our digital privacy. The bill would require digital wallet companies to register as money services businesses, which means they would have to monitor clients' payment transactions like banks even if they don't move money. This means that a wallet company would be responsible for monitoring our personal digital wallets for money laundering activities and for filing reports to the federal government of suspicious activities or of transactions that exceed $10,000.
I carry my purse knowing that the government is not aware of what's in my physical wallet. My wallet contains my driver's license, cash, debit and credit cards, health insurance card, gym membership, my coworking space card and my university staff badge, along with a loyalty card for my favorite coffee shops.
Now that we are moving into a digital economy, our personal physical wallets are beginning to transition into personal digital wallets. Apple, Google, Venmo and other companies offer digital wallets that they control. Unlike these wallets controlled by others, personal digital wallets should belong entirely to us and be ours to control. Moreover, digital wallets can contain nonfinancial assets, like our driver's licenses. They are not just financial accounts. As such, we should be cautious about prescribing a purely financial regulatory approach to these more diverse digital vehicles.
In addition, much like digital wallet service providers, computer scanner and printer software providers provide infrastructure for transferring text and image data. They are neither directly in control of the data being scanned or printed, nor do they necessarily have insight into how customers use their infrastructure. While nonfinancial firms could, in theory, be required by law to collect the names of their customers, they would be unable to comply with requirements to monitor everyone's digital copying and printing for suspicious or illegal activity.
Many of the efforts to expand the existing anti-money-laundering regime claim to be focused on filling in so-called "loopholes" or "gaps" but instead are actually focused on expanding the reporting regime required to keep track of our personal digital wallets.
The reintroduced bill labels our personal wallets as "unhosted." But our personal wallets are not unhosted — they are self-hosted by us, the individuals — not third-party companies.
Rather than expanding the current system that does not rely on traditional financial intermediaries, there are ways to build an anti-money-laundering framework that will let us adapt to our new digital financial economy. There are ways to be more effective, more cost-efficient and respectful of our fundamental rights to digital privacy. In fact, there are ways to control our personal digital wallets that will leave our children with more privacy and more control over their personal data.
As a former regulator, I see that current regulatory frameworks are not keeping up with the emerging technologies that are transforming how we conduct our daily financial lives.
Congress should pass legislation that grants Americans the right to control our personal data and digital assets. In a digital society plagued by problems of personal data being held everywhere with few safeguards, the right to personal data privacy is fundamental, as is the right to control one's personal data. Americans should be able to choose to use personal digital wallets, intermediary-controlled wallets, both or even neither.
Second, government agencies should fully comply with Fourth and Fifth amendment rights under the U.S. Constitution. Law enforcement should use warrants, seizure and forfeiture tools rather than relying on monitoring programs of our personal wallets to gather evidence.
Third, it should be easier for individuals to fulfill anti-money-laundering reporting obligations without having to go through a bank or money services business. Individuals can choose to either self-report or use a third-party service provider to monitor their personal digital wallets for compliance purposes.
Fourth, know-your-customer requirements can be achieved by leveraging privacy-preserving technologies, such as self-managed digital identity solutions, zero-knowledge proofs, multiparty computation, etc. These privacy-preserving technologies allow you to prove you are who you are without divulging personally identifiable information.
Fifth, law enforcement agencies should themselves use blockchain technologies, including blockchain analytics, to investigate suspicious activity and establish probable cause/legal standing to seize illicit funds.
Finally, companies should not offer digital wallet services that are proprietary and closed to other digital services. For example, motor vehicle departments around the country are partnering with Apple and Google to develop digital representations of state driver's licenses called mobile driver's licenses. However, these Apple/Google wallets are proprietary. If I use an Apple wallet, Apple chooses which apps I can share my mobile driver's license with. I do not own or control my Apple wallet and do not have the freedom to choose which apps I want to use. We should own and control our digital wallets and what's in our digital wallets, and digital wallets should be open and interoperable with apps and services of our choosing.
This framework that I have outlined above goes beyond the proposed bipartisan bill and our anti-money-laundering regime, which requires us to use third-party-like banks and money services businesses to account for the contents of our personal digital wallets in order to fight money laundering. We need a new framework that affirmatively grants Americans control over their personal digital wallets and the freedom to choose with whom to share our data and digital assets — and thus with whom we want to conduct our digital lives.
