On December 19, 2020, the Financial Crimes Enforcement Network (FinCEN) published a 72-page notice of proposed or suggested rulemaking, titled “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets,” which could impose new and “onerous” reporting and recordkeeping requirements for virtual currency transactions, Paul Grewal, the Chief Legal Officer at Coinbase, confirmed in a blog post on December 22, 2020.
FinCEN has requested that the public provide comments in only 15 days, a time period that will be spanning Christmas Eve, Christmas Day, New Year’s Eve, and New Year’s Day, in the middle of the COVID-19 pandemic. Grewal pointed out that this will leave only a handful of actual business or working days to obtain comments.
He also mentioned that Coinbase and other crypto industry participants have enjoyed and valued a “productive working relationship” with FinCEN. However, this latest development is quite an “unfortunate and disappointing departure,” Grewal wrote.
He claims that this new requirement isn’t how “effective regulation” is made. He also noted that Coinbase is now requesting that FinCEN “reconsider its haste and provide the typical 60-day period for such significant proposed rulemaking.”
“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.”
“FinCEN asks for comments on 24 separate questions … responding to [all these] 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.”
For instance, FinCEN has requested that estimates of costs of complying with the suggested record keeping and reporting requirements be provided. The agency also wants estimates for “if reporting thresholds changed, coverage expanded to include all crypto transactions, and additional identity verification was mandated,” Grewal noted. He also confirmed that FinCEN has not tried to estimate these costs of the proposed rules, “leaving that work entirely to the industry in this abbreviated comment period.”
Grewal pointed out that Coinbase is also concerned regarding the potential issues that weren’t mentioned by FinCEN such as not accounting for “relevant differences” in crypto-related services which have matured considerably over the years.
Like many other crypto industry participants, Coinbase feels that 15 days is simply not enough time to prepare feedback that FinCEN can meaningfully use to prepare regulations that can effectively address “the concerns of the community it is regulating, as it is required to do.”
According to Coinbase, there’s “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).”
Grewal also mentioned that it’s not enough to cite “generically to ‘significant national security imperatives’ and a [few] 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.” (For example, “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).”)
However, FinCEN’s notice here states that this particular issue has been “under consideration” since at least last year, “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.”
Grewal also pointed out that Coinbase thinks there’s “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.” Moreover, Coinbase believes there’s also “no justification for treating the cryptocurrency industry so differently from our counterparts in traditional finance.”
Grewal further noted:
“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.”