DOJ’s crypto framework is “a total disaster” for digital privacy rights
The recent U.S. Department of Justice (DOJ) encryption enforcement framework is a threat to digital privacy rights, according to a lawyer from the Electronic Frontier Foundation (EFF).
“It was a complete disaster for privacy, anonymity and civil liberties in the cryptocurrency space,” said Marta Belcher, special counsel for the digital rights advocacy group.
The framework, released earlier this month, details the US government’s approach to crimes committed with cryptocurrencies, but also appears to define some general political positions on cryptocurrencies and cryptocurrency exchanges in general. Belcher, who is an attorney for Ropes and Gray and a third-party advisor to Protocol Labs, said the framework released earlier this month raises many concerns about privacy rights, pointing to the language used about peer-to-peer exchanges. , mixers / tumblers and “enhanced cryptocurrency anonymity” (privacy coins).
In Belcher’s view, there are a number of legal concerns with the crypto enforcement framework as set out by the DOJ’s Cyber Digital Task Force. The language in the framework would appear to have implications for people sending cryptocurrencies to each other, as well as for exchanges offering transactions as a service.
The enforcement framework even had a section on mixers and tumblers, noting that entities that qualify as money service companies are subject to the BSA or “similar international regulations.”
The Justice Department’s arguments against cryptocurrencies are similar to the facts against crypto, another bogeyman from law enforcement. The Justice Department, along with other members of the “Five Eyes” intelligence alliance plus India and Japan, released a statement calling for backdoor access to encrypted messaging services and other systems last weekend.
The statement reflects the “fundamental discomfort” of law enforcement agencies with any technology that could allow private interactions, said Jake Chervinsky, general counsel for Compound Finance.
The app framework is “making the exact same argument that you’ve seen for decades about encryption,” Belcher told CoinDesk. “These are the exact same arguments that are against encryption and they come from exactly the same place as the fight against encryption.”
Intelligence agencies claim that backdoors in encrypted protocols and systems would make it easier to identify and prosecute crimes committed with privacy protection tools (including cryptocurrencies).
This statement ignores the technical realities of building strong encryption, noted the following.
“The Five Eyes coalition continues to overlook some basic points about encryption: first, that strong encryption itself enhances public safety and prevents crime by protecting people and their data; second, that it is impossible to build back doors in encrypted systems without creating extraordinary new cybersecurity risks; and third, that cryptography tools are increasingly open source and cannot be easily saved or controlled when requested, “he said.
He added: Many cryptocurrency companies and developers, for example, would not be able to fulfill backdoor requests due to this open source.
According to the DOJ’s crypto framework, a P2P exchanger is considered a money services business, which means it must meet the reporting and recordkeeping requirements as defined by the Bank Secrecy Act (BSA) and other regulations if they buy or sell convertible virtual currencies. .
The framework defines individual exchangers as individuals who provide crypto transaction services to others, but Belcher believes it could be used to apply to two individuals who simply transact with each other, not just individuals who act as service providers.
“Individual exchangers, as well as platforms and websites, that do not collect and maintain customer or transaction data or do not maintain an effective AML / CFT program may be subject to civil and criminal penalties,” the framework said, referring to the fight against money laundering / fight against terrorist financing.
The distinction is between “software providers” and “service providers,” Chervinsky said. Software vendors, who make up a large part of the crypto industry, implement decentralized protocols and publish open source projects that writers cannot control or modify. Service providers, on the other hand, offer “licensed proprietary platforms” that operators can control.
In Belcher’s view, the encryption framework puts both people who write code for peer-to-peer transactions and those who use this code at risk of enforcement actions.
“There is liability on people who use these exchanges to exchange cryptocurrencies anonymously with others,” he said. “To say that I cannot send you cryptocurrencies using a script, you and I cannot directly transact with each other in a peer-to-peer manner without the data being collected somewhere by a third party is a complete affront to privacy and civil liberty. “.
People can easily carry out similar transactions using cash, he said. “Nobody questions that I can give him money without a written record of it being necessary.”
The framework also targeted privacy coins and other tools to find out about transactions, such as mixers and tumblers. Belcher said it is wrong to focus on whether privacy coins can comply with the BSA and other laws.
Cryptocurrencies could carry over privacy protections that come from cash transactions and change them online, he said the following.
“What’s so important to me is that you can transact anonymously and you can take the protections of cash and you can transfer it to the online world,” he said.
“The idea that simply exercising your right to transact anonymously is indicative that you have committed a crime is wrong in my opinion.”
The US government followed suit with its first enforcement action against a bitcoin mixer just 11 days later, when the Financial Crimes Enforcement Network (FinCEN) fined Larry Dean Harmon, the alleged operator of a mixer, with 60 million dollars for its operations.
However, that particular case has no major implications for the overall software mix, Carlton Fields attorney Andrew Hinkes said on Twitter.
“The events here are appalling and appalling. A service provider that benefits from software that provides money transmission services must comply, must keep records, and must report. Simple as day, and it should be obvious by now, ”he wrote, pointing to various facts in the case, including the operator’s boasting of transaction privacy for customers, transactions made for Iran-affiliated accounts, and payments. provided for at least one child exploitation site.
Chervinsky agreed, noting that Harmon was treated as a service provider, not a software provider.
It’s possible that the Justice Department framework could help contribute to financial censorship, an ongoing problem within the United States, Belcher said.
Traditional payments giants monitor and censor a number of transactions, including harmless ones that could upset certain sensibilities.
“There are all these examples of a wicked bookstore or nonprofit supporting LGBT fiction for Visa and Mastercard to shut down their accounts, and also famous things like WikiLeaks then turning to cryptocurrencies when they can’t be served by middlemen. financiers who are censoring that, “he said.
These transactions are not illegal, Belcher noted.
A cashless society is effectively a watchdog society in this regard, he said.
Real crimes committed with cryptocurrencies must be prosecuted, and it is a benefit to the crypto community when they are, he said.
The Justice Department report included dozens of examples of crimes that were committed using or at some point touching cryptocurrencies, including several recent high-profile cases.
However, blaming cryptocurrencies for their use in crime is pointless, he said.
I think it goes without saying that cash has always been used to facilitate illegal activity, “he said.” We don’t blame Ford when one of their cars is used as an escape vehicle in a bank robbery. “
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